Thursday, 29 November 2012

Globalization: How does it challenge traditional Theories in International Relations (IR) ?



The author: Ranganai Moyo

The concept and phenomenon of globalization has been there for some time and it dates back to Adam smith and Ricardo `s theory of absolute and comparative advantage which was based on free trade and specialization. Ricardo argues that nations should specialize on goods and service which they have comparative advantage and the main perception of specialization was to enable trade among countries. Therefore, globalization can be viewed as processes which involve the integration of social, economic and political activities across national boundaries. It is also characterized by the growing and intensity of global relations among nations and processes of innovations within the international systems to enable humanity and businesses overcome distance and barriers.Globalization is evidenced by speedy of global capital flows, cultural exchanges and integrations of global financial systems an all these allow investments to spread across national boundaries. Though, globalization has encouraged economic and social exchange of goods and service across national frontiers, it also brought some concerns among the peripheral of the world especial the poor nations of the global south. The main catalysts of globalization are neoliberal advocates (the capitalist West) who are also the largest shareholders in IMF and the World Bank dictate their policies to third world countries these institutions.Therefore, the  report examine the role of neoclassical ideology in advancing globalization and its implications on traditional theories in international relations.
However, it might be of interest to first understand why neoliberals support the spread of capitalism worldwide as a model for peace and security. There was a general consensus among neoliberals that the mushrooming of various organisations diminished the contention which put the state as the only actor in international relations. In addition to that, prevailing wisdom of the post-war period believed that the economic collapse and world recession of the 1930s created unstable environment which gave rise to extreme nationalists (Steans and Pettiford, 2005). So the emergences of nationalist ideologies were associated with self-interest instead of protecting international order and security. For example trade between communist states and the free world was virtual impossible due to excessive regulation preventing exchange of goods and services across the two worlds. Moreover, countries imposed barriers to safeguard domestic markets from foreign rivals and to protect balance of payments positions by restricting imports. It was general believed among neoliberal supporters that, such state self-interest of protectionism had knock-on effects on the global economy as such, the Bretton Woods were designed to make it more difficult for states to act in a self-interest way (Steans and Pettiford, 2005). Therefore, it can be argued that up to the late 1960s realists were the dominant force in International relations but, the resurgence neo-liberalism in the early 1970s self-interest began to weaken.
The catalysts of globalization can be traced back to the 1940s at Bretton Woods Conference which established institutions that were to play a major role in the international system. The Bretton Wood System consists of International Monetary Fund (IMF), the World Bank and the World trade Organization and was a brainchild of the neoliberal ideas. The role of the World Bank was to deal with reconstruction of the world economy after it was destroyed by the two wars and the World Trade Organization was to encourage free trade among nations. Furthermore, the IMF`s key responsibilities in the international system was to provide budgetary and balance of payment support as well as monitoring services of world economy. However, the role of these institutions particularly the World Bank and IMF evolved over time and by the 1970s, these financial institutions were to compliment neoliberal ideas in their policy framework. There is a tradition belief among neo-liberals that free market economy enables democratic freedom to prosper and ensures optimum economic performance with regards to efficiency, economic growth and technological progress, Kotz, (2002). This is largely because under a free market economy the state has a limited role as it is characterised by a set of economic policies centred on privatization and deregulation. In international spheres neoliberals are advocating for free movement of goods, services and capital among other across national boundaries. In other words by advancing capitalism, neoliberal supporters want a borderless world with limited or no regulation as such, it appears as though neoliberal ideas shaped the foundations of globalization. So by 1980s the world was increasingly becoming borderless as multinational companies compete for market opportunities worldwide.
The policy frameworks within the neoliberal school of thought provided opportunities for multination corporations to expand their operations to overseas markets as many countries began to subscribe to free market ideologies. Apart from that, the United States and other capitalist countries were successful in advancing neoliberal policies to the peripherals through IMF and the World Bank, Kotz, (2002). As a result, global investments rose sharply from about $60 billion in the begging of the 1980s to $651 billion by year 2002, Alsan, Bloom, Canning, (2006). This was largely due to increase in international capital mobility driven by multinational corporations’ expansions across national boundaries. Multinational enterprises play a critical role in globalization, since their activities in the host country may promote social and cultural changes world wide. Empirical evidence by Ruhul, Salim, and Bloch, (2009) indicate that there is a positive relation between globalization and technological progress in Indonesian pharmaceutical sectors. The positive relation was attributed through spillover effects as foreign firms tend to bring capital intense goods to the host markets which require minimum level of training and skills attainments. Since many third world countries experience acute shortage of technological advances  globalization is likely to benefit countries in need. In addition to that, globalisation can facilitate the spread of information and communication among different societies scattered worldwide. For example, Leider`s study in, (2010) indicate that globalization enables the spread of information and communications within the global among system. This is very important especially to countries with limited resources to access world events, so globalizations allow information and ideas be transmitted easily and cheaply across national boundaries. Therefore, the spread of advanced technology facilitate the emergence of social media such as twitter, Skype and face book which are increasing uniting the world together.
The last three decades have witnessed the diminishing of autocratic system of governance around the world as more countries continue to embrace democratically elected national administration. The prominence of democracy chiefly in former communist states might have been triggered by the continuation of stateless world; as such globalizations enabled citizens commence wider demands from their governments. For example ,the open up of countries’ economies and emergence of the worldwide web in the 1980s allowed citizens to access some of competitive opportunities which were only accessible in advanced economies. A study by Vu, (2011) found that technological progress improves broad-based human capital skills and consumer sophistication and this might explain why the China decided to partial respond to student protests in 1979 and also the collapse of the Soviet Union in 1989.It look like globalization has positive effects on human aspiration because of the numerous opportunities it bring to the global community. Besides that, globalisation may improve the country`s export capability through especially if the transnational national enterprises decide to set up production facilities in the country. For example china enjoys economic prosperity as she runs a huge balance of payment surplus because most FDI operations there are destined for the exports. In this regards, globalization is of significant benefits to countries as it bring nations together.    
Globalization in relations to IR theories
The mechanism of the neoliberal ideology made important contributions to international relations discourse; particularly in the areas of human rights, democratization and governance among others. This is largely because supporters of neoliberal views believed that free market approach would enable states to act on mutual interest rather than acting on their own as perceived by realists. In addition to that was a rapid increase of Non-Governmental Organizations (NGOs) from less than 1000 NGOs in the bigging of the 1940s to nearly 5000 by year 2000 (Steans and Pettiford, 2005). This prompted neoliberal followers to conclude that the state was no longer the only key actor international relations but even non-states organization had a vital role securing the balance of power. However, realists would argue that even if the presences of other actors are be considered countries always act in self-interests so the mushrooming of organizations in international arena does not guarantee world peace. So globalization threatens world peace and security because too many actors are advancing their own self-interest rather than promoting a peaceful world. On the other hand Marxists advocates do contend that globalization is taking place and it is driven by powerful capitalist to increase their monopolistic towards the world`s poor countries. In addition to that, Marxists would argue that rapidly increase of various actors such as the World, IMF and NGOs are there to protect neo-imperialist seeking to control the world`s political and economic system. In this regard, the concerts of globalization appear to have mixed reactions within the international relations discourse. Neoliberals are more optimistic about the prospects of peace and security through global integration because this will enable dialogue among member states, however their views are different from realists who argues that despite all the efforts to bring nations together, countries will always act in self-interest as such anarchy will continue to exist. Marxists would argue that, globalization is just another form of imperialism driven actors within the capitalist world seeking to increase their wealth base on the expense of the poor world. As a result of that, globalization is likely to instigate future conflicts which might destabilize global peace and security if citizens decide to revolt against capitalism.
Conclusion
There is no doubt that the processes of globalization continue to redefine the world systems as it enable global citizens to acquire various opportunities and share across national frontiers. The perceived marginal benefit of globalization and the pressure on governments has witnessed a change of national policies towards deregulations and privatization these policy frameworks are the main apparatus to global integration because it encourages competition.  As such economic and social aspects are now transmitted across national boundaries, economic walls are falling, citizens are able to access different opportunities and be able to share worldwide without any form of restrictions. Autocratic leadership gradually diminishing and democratic principles are emerging even in those countries within the peripherals which were reluctant to adopt those values; globalization empowers citizens to demand from their government how they want to be governed. In light of this, the process of globalization is inevitable, given that there has been a rapid growth of actors within the international arena, national and global governance is evolving to accommodate the changing nature of the international system. Having said that, I have come to the conclusion that globalization has some positive impact on global peace and security as it bring states together which in turn reduce the level of anarchy the main cause for conflict according to Realists. 

Reference
Steans, J and Pettiford.L, (2005), Liberalism: Introduction to International Relations Perspectives and Themes, 2nd edn, pge.21-47: Pearson Education, UK.
Kotz.D.M, (2002), Globalization and Neoliberalism, Rethinking Marxism 12, (2),pge64-79,U.S.A.
Alsan.M,Bloom,D.E and Canning.D ,(2006) The effects  of  Population Health on Foreign direct Investment inflows to Low-and Middle-Income Countries: World Development,34(4),pge.617-630,Elsevier Ltd.
Ruhul .S, Salim.A and Bloch.H, (2009) Does Foreign Direct Investment Lead to Productivity Spillovers: World Development, xx (x), pge.xxx-xxx, Elsevier Ltd.
Cheung, K and Lin.P, (2003), Spillover effects of FDI on innovation in China: Evidence from the provincial data, China Economic Review, 15(2004), pge.25-44, North-Holland.

Tuesday, 20 November 2012

Evaluate the impact of aid on economic growth.


Evaluate the impact of aid on economic growth.

The relationship between aid and economic growth is increasingly attracting so much literature in recent years. The last three decades witnessed a dramatic growth in aid inflows to Less Developed Countries (LDCs) as advanced economies continue to extend assistance to the world`s poor countries. However, most aid flows are coming from the UK, United States of America Europe, Japan and the Nordic group such as Sweden, Denmark, Norway and Finland countries. It appears as if low income countries heavily depend on foreign aid to finance the level of investments needed to achieve sustainable growth. Many developing countries experience high unemployment, high inflation and balance of payment deficits among others due to inadequate investments in key sectors of their economies. So foreign aid would be needed to finance essential factor endowments like training the country`s workforce, advanced technology, capital investments. Also, most aid receiving nations are prone to external shock because of their dependent on primary commodity exports which can adversely be affected by changes in world demand and weather conditions. As a result, growth rates of most developing countries are not very sustainable as their economies experience higher inflation, fiscal and trade deficit. So it’s a great challenge for developing countries to attain economic growth without some form of external help either in the form of bilateral or multilateral aid. It appears as though foreign aid does provide a foundation for economic growth as it seek to cushion away some of the burden experienced by Less Developed countries (LDCs). Therefore the paper analyse the impact of aid on economic growth of the receiving country.
Furthermore, there are evidence to suggest that foreign aid work in alleviating poverty and promoting economic growth in developing countries. For example, the recent awareness campaign by anti-global poverty activists at the G8 summit in 2005 in Scotland highlight the importance of foreign aid to Less Developed Countries (LDCs. As most developing countries continue to experience mounting debt problem, budget deficits, and high unemployment and worsening poverty, foreign aid can be used to finance development projects aimed at stimulating economic growth or to meet debt repayment. For example, almost 40% of aid inflow in Senegal is used to finance debt obligation (Ekanayake,E and Chatrna.D, 2007)and this may help a country to focus on improving human capital,  technological advancements, and other infrastructures needed to attract private investments such as foreign direct investments . Moreover, by directing aid inflow to meet debt repayment increase a country`s credit rating as a result, funding from lenders would be easily available. Therefore, foreign aid is paramount to the success of recipient countries as it provides extra capital to build necessary tools required for economic growth.
In addition to that, many developing countries continue to experience recurring economic problems ranging from fiscal disparity, trade shocks and poor domestic consumption and all these hardship affect growth as such foreign aid would be necessary tool in encouraging economic growth to Less Developed countries. Pinto and Bayraktar (2008), argues that aid inflow improve budgetary balance and lead to increase in public investment thereby raising the nation`s capital stock thus creating essential conditions for inward foreign direct investments. In other words foreign aid provide desired framework for private investments which are the main drivers of economic growth. Moreover, given that most Less Developed economies largely depend on export earnings from primary goods which are prone to changes in world markets and weather patterns, foreign aid is vital to these emerging economies. Thus, a fall in world demand of primary commodities is likely to cause severe trade deficit of a country whose economy is based on primary commodity exports.  This is echoed by McGillivray (2003), he found that a 40% negative trade shock has a potential of reducing economic growth of country by more than 1%. The availability of foreign aid can mitigate the adverse effects of trade shock and prevent a country from going into recession as such it look like aid has a positive effect on economic growth.
Though aid seem to provide financial assistant to poor countries, countries respond to aid inflow differently as some countries react positively and others respond negatively. For example, Botswana and Republic of Korea in the 1960s and Ghana and Bolivia in the 1980s, and lastly in the 1990s Vietnam and Uganda responded positively to foreign aid, hence achieving economic growth. However, many developing countries that received huge sums of aid performed poorly in terms of attaining economic growth, they include, Zambia, Nepal, Zaire among others. These countries responded negatively to foreign aid and on the other hand, countries that receive little aid inflows such as Costa Rica, Algeria and China performed well to a number of economic indicators (Harrigan, J.and Wang.C, 2011). The reason why countries react differently to foreign is likely to be caused by a number of factors, for instance many developing countries do not have adequate infrastructure to deal with corruption, and ineffectiveness of policy framework of recipient countries. So the intended goals of aid tend to fail if recipient countries do not have enough resources to enforce sustainability use of foreign aid flows. This could provide an explanation as to explain why Zambia and other developing countries reacted negatively to foreign aid in terms of achieving economic growth.
Besides, that almost every year advanced countries give out large sums of money in bilateral aid to developing countries. The United States which is one of the largest foreign donors spent almost $20 billion on development assistance in 2004 and in the 1990s foreign aid claimed on average 0.5% of government budget(Milner,H.V and Tingley,D.H,2010).Donor make extensive use of their aid programs to promote their strategic and political interests (Wagner.D, 2003).For example, USAID is heavily influenced by the country`s interest in the Middle East  and almost one third of bilateral aid is allocated to Egypt and Israel (Minoiu, and Reddy, 2010). This is because American aid is linked to the country`s foreign policy and economic interest, whilst the UK and France seem to direct most of their bilateral aid to former colonies. Therefore, foreign aid will have negative impact on economic growth if donors` aid programs deviate away from economic and social needs of the recipient country. In other words , it appears as though the outcome of aid programs to developing countries is influenced by the donor`s motives and this might provide a clue as to why majority of countries perform poorly in the presence of aid. Moreover, foreign donors are also driven by strategic interests in developing world, and according to Wagner.D, (2003), 50% of bilateral aid in the 1990s was tied or partially tied to exports. Aid that is driven by political and strategic interests of the donor is likely to have a negative impact on economic growth since little or no emphasis on poverty alleviation would be addressed.
Moreover, the other area of consideration when examining the impact of aid on economic growth, it could worth pointing out that most aid programs received in developing countries have conditions attached to them. So most these conditionality aid programs focuses on demand restraint policies, usually implemented by large reductions in government expenditure through measures such as removal of subsidies, public sector employment cuts, privatization and tax reforms as well as liberalism of domestic economy. Although such conditionality on aid might have desired goals of encouraging efficiency economic practice in developing countries, there is growing evidence that majority of countries which implemented structural reforms performed badly. For example, structural reforms in Latin America between 1980s-1990 failed to resort economic growth in the region possibly because some policies prescribed by bilateral and multilateral aid donors were irrelevant to the region`s own growth strategy. Also the real wages rates dropped sharply in Latin American economy than the previous three decades of post war period (Woller, G.M and Hart, D.K, 1995) as the region experienced high inflation driven by economic restructuring of that 1980s-1990s.Huchison and Noy,(2003) concluded that  macroeconomic stabilization programs in Latin America were unsuccessful because IMF sponsored structural reforms did not have provide a platform that would put a stop the cycles of instability in the Latin American region. Therefore, in the presence of conditionality, foreign aid is likely to negatively affect economic growth of the receiving country.
In addition to that, the conditionality attached to aid often embodies element of strategic, economic and political motivations of donors which may diverge from the recipients on development goals (Wagner.D, 2003). Hence aid that is driven by self-interest of donors could distort the aid transfer process and may negatively impact on economic growth. For instance countries that give bilateral aid to gain export market of their capital goods to developing countries such aid is likely to respond positively to donor country that to the recipient. The argument presented by Milner,H.V and Tingley,D.H,2010) and (Wagner.D, 2003) that foreign aid which is aimed at promoting donors’ interests will only respond positively to donors’ objectives than promoting economic growth. The case for US aid which appear to focus on promoting America`s foreign policy and to enlarge its export market base somehow challenge the contention that aid work for developing countries. However, empirical evidence shows that bilateral aid from Nordic countries does appear to have positive effects of economic growth. The success of aid from Sweden, Denmark, Norway and Finland is more development oriented as it focus on strengthening economic infrastructure of the receiving countries such as poverty alleviation and social services programs. It would fair to say most Scandinavian donors have no special interest in the recipient country and as such aid programs are centred on promoting economic development. Given that most developing countries lack adequate infrastructure to attract private capital inflow, aid that is orientated towards build the necessary framework for national competency will have positive impact on economic growth of the recipient countries.
The intended objective of foreign aid is to create a platform for economic growth such as job creation, better education facilities, increased in taxable bases, and improve in health provisions of country or region.  In contrast the number of foreign aid recipient countries which appear to benefit from aid inflows are narrowing suggesting that aid could be detrimental to economic growth than it is perceived of. The outcome of foreign aid on economic growth is affected by a number of factors such as the manner, in which donors allocate their aid. So donors who allocate aid to promote their own interest rather than the recipients’ goal will yield negative on growth. Similarly many growing empirical studies shows the adverse effects of conditionality attached to foreign aid, particularly those that require recipient countries to liberalise their economies. In my view such donor policies are damaging growth potential recipient countries because liberalism expose the country to numerous risks such as in inflation, risk associated with trade and capital outflows. For example capital flight was a major problem in Latin America when the region relaxed exchange controls at a time of economic instability. So donors’ policies which seek to promote capitalism in developing countries in exchange for aid do in a way worsen economic growth in developing. Therefore, for aid to have positive impact on economic growth, it has to address economic and social needs of the recipient and be geared towards development.
Conclusion
The relationship between aid and economic growth has attracting large volume of literature in recent years and practitioners seem to disagree if aid does promote economic growth. Given the motive of some major donors it is highly unlikely if aid is going to have a positive impact on economic growth of recipient countries. For this reason aid that is driven by donors` economic, political and strategic interest will have negative effects on economic growth. The worsening economic crisis in most developing countries like those in Sub-Saharan Africa is alarming given the extent of foreign aid flows to these countries. However one major reason to this could be cause by conditionality attached to foreign they receive, many of these countries have implemented liberal economic policies with little success as a result incidence of extreme poverty, and unemployment and shrinking real GDP are common. This raises serious questions regarding the impact of aid on growth, is it that foreign aid fail to encourage growth orientated projects or failure is caused by corruption in recipient countries. I would therefore conclude that aid is very important to poor countries if it provide the foundations of economic growth of the recipient and is free from donors` strategic and economic interests.

Monday, 19 November 2012

The relationship between neo-liberal economics and development in third world:The Case for Zambia.


Introduction
 Many countries in developing world have a great task of improving the living standards of their citizens as underdevelopment and poverty remains one of the most pressing challenges. So the case study report investigates the impact of neoclassical policies on development for Zambia between 1980 and 2000. However, development can be defined as a process of improving or promoting people`s living standards and it is measured using the human development index. Todaro, (2000) argues that development should encompass conditions that create economic growth and self-esteem through the establishment of economic system and institutions that promote human development. Basically, development concerned with increasing people preference which could be in the form of consumer choice, democratic rights and liberty among others. The United Nations Development Programme (UNDP) instituted the human development index (HDI) to measure the wellbeing of a particular country. The human development index attempt to rank countries on a scale of between zero( low) and 1 (high) and it  is based on three goals or end products of development which are, real growth per capita income , life expectancy and education attainments. So the case study report seeks to highlight some of the impact of free-market, (neoclassical orthodoxy) policies on Zambia`s development over a period of two decades (1980-2000).It is also important to note that, the concept of development emerged in the post-war era maybe as part of outperform and to stop Soviet Union advance in newly independence states of Africa and other regions. So the notion of development became a theoretical position of the United States in the 1940s and the idea gave birth to international institutions such as the IMF and the World Bank, both intuitions were tasked to provide financial support for economic growth and development.
Economic and social trends in post-colonial Zambia
The Republic of Zambia is a landlocked state in southern Africa and it borders with the Democratic Republic of the Congo to the north, Tanzania, Malawi on the east, Mozambique, Zimbabwe, Botswana, Namibia and Angola. Zambia`s economy was dependent on mineral wealth with very few trained citizens to govern the country. Like any other developing country, Zambia`s economy was mainly based on primary production and copper was its largest earning power. The country obtained independence from Great Britain in 1964 and Kenneth Kaunda was the first President of a newly independent state. The country faced numerous development challenges as it had no manpower to run and govern the country, there were only less than 100 natives with university graduates at the time. The country had no or little infrastructure and schools as such about 0.5% of the country’s population were illiterate making her (Zambia) perhaps the least developed British colony. So the new government embarked on both economic and social reconstruction of the country through a number of national projects under the commission for development planning. The first policy framework was aimed at improving the nation`s education system which was poorly developed, so in its early inception the government devoted much of resources on public sector to build infrastructure and the education at all levels. President Kaunda introduced free education policy which meant that almost very school going child had opportunities to progress in future. The country`s policy reforms were guided through an idea of Humanism (a policy mix of socialism and Christian ethics) national recourses were mobilized through donations and the first university was opened in 1966, there after a number of tertiary institutions were built. The massive investment in the public sector especially in education led to a sharp increase in enrolments at all level by 1970.In addition to that, the country`s economy was controlled by the companies that had linked with the colonial administration just after independence so the government instituted the second phase of development planning, this time with the intent of facilitating the acquisitions of major investments in the mining sector and other strategic sectors. The government successful nationalized all major industries and according to Lambert, (online) almost 80% of the Zambian economy was now made up of stated owned enterprises in 1980. The endogenous development strategy (Humanism) enabled the country`s transition process faster, social protection was guaranteed for low income families and the education systems began to flourish. However, Zambia`s economy relied on copper and was the major exporting commodity accounting for about 90% of the country`s total revenue in the 1970s.

Theoretical reflection in development
In an attempt to address the problems of Less Developed Countries (LDCs), major theoretical assumptions on development began to emerge in the post-war era. The theories were aimed at finding out the causes of underdevelopment and how it could be rectified and these theories would save as policy guide line for development. The diagnostic approach possibly engineered the establishment of international institutions such as the World Bank and the International Monetary Fund (IMF) to address some of major problems of the peripherals. The theoretical positions of the 1950s and 1960s sort to suggest that lack of lack of saving and little investment in Less Developed Countries were the fundamental causes of underdevelopment and hence intervention at government or international level was needed to solve the problems. The neoclassical model or counterrevolution sited poor development in third countries as being a direct result of market manipulation due to government interventions and regulations. The model  

          Lewis Model: developing countries have dual economy a (traditional and modern economy).He argues that poor countries were burdened by low level of return, low savings rates and excess labor force employed in the unproductive traditional economy and that if labor in the traditional economy were to be mobilized, poor countries would develop faster.
          Rostow`s stages of growth argues that, countries have to go through five stages of growth and then he identified the problem of developing countries as being caused by the fact that take-off has not occurred to effect growth.
          Dependent theory invented by Latin American economists   attempt to explain why many developing countries were so poor and he noted that Less Developed Countries were disadvantaged by their dependence on exporting primary goods as such their products could not compete with those in advanced countries. It argues that, Less Developed Countries (LDCs) should impose higher trade tariffs to protect their industries.
          The neoclassical or liberal models view the problems in Less Developed countries differently, under development in third world countries is caused by poor resource allocation due to excessive government interventions.

Methodology
It can be argued that Rostow, Lewis and Prebisch models consider intervention at both national and international level as key to uplifting economic fortune of those in the peripheral as a way of increasing those  countries` savings rates and wealth accumulation. On the other hand, neoclassical or counterrevolution put emphasis on free-market as the main agency for development. The case study report focuses on neoclassical theory as model for development pursued in Zambia from 1980 to 2000 against its impact on development. Real GDP, life expectancy and education will be the main factors to be relied on when examining the effects of neoclassical model on Zambia. The human development index corresponding to reforms of the 1980s and 2000 will be generated to assist with the enquiry. Furthermore the report will make use of empirical evidence and available literature which seek to highlight the relationship between neoliberal economic policy and development.

The case for Zambia 1980 to 2000
In trying to solve its economic crisis as the price of copper continued to decline in the 1980s, Zambia merely abandoned its humanistic philosophy and policies that were inline with the neoclassical model as its long-term economic planning .The structural reforms were to be carried and implemented under the sponsorship of the International Monetary Fund in exchange for budgetary and balance of payment support. In the 1980s a wide range of reforms were carried out  these include but on all, privatisation of state enterprises, deregulation, reduction in government expenditure , ease of exchange control, subsidies were abolished, tight monetary policy, trade liberalism among others. The  reforms were implemented in all sectors and in agriculture, price fixation were removed, producer and consumer subsidies were reduced and state monopoly on agricultural marketing rights were demolished as well as allowing foreign agribusiness participation in the economy.  According to Wood and Kean, (1992), 1980 subsidy on maize meal was about 70% of the retail price, so reduction in subsidies coupled with other reforms such as the easing of price control, accelerated inflation .Also studies by Shawa, (1993) indicate real GDP in Zambia slummed from 1980 to 19887 and that real per capital declined remarkable   maybe due to depreciation of the value of the national currency by the late 1980s. Furthermore, cuts in public services and retrenchments of workers invoked riots and strikes around the country and leadership of President Kenneth Kaunda came into serious opposition from churches and labor groups. In 1987 Zambia temporarily aborted the IMF`s sponsored neoliberal reforms and the government introduced its own program called New Economic Recovery Programme (NERP). Under the New Economic Recovery Programme, the government returned control over all economic activities and spending. This resulted in slowing down of inflation as economic performance increased which recorded a growth rate of nearly 7% in 1988 compared to less than 3% in the previous years.

However, in 1991 a new government came in office and immediately implemented radical economic reforms (neoclassical model) which immediately eased food subsidies completely, child mortality rate in the country increased steadily in the 1990s due to deteriorating   social-economic indicators. Garenne and Gakusi (2006), child mortality increase suddenly from 1990 to 2000 and was higher than the previous decades, this was chiefly caused by decrease in real per capita income and austerity measures in the health sector. Also, the years of neo-classical reforms in Zambia witness unprecedented decline in life expectancy 1990 to 2000 when compared to preceding decades, (http://www.zamstats.gov.zm/media/chapter_8_mortality-_final.pdf). The decline in life expectancy and the subsequent increase in child mortality rate during the inter years of structural reforms had been attributed by diminishing of living standards for majority of Zambians. Nevertheless, there are other factors independent from economic reforms that were carried out during this period, epidemic diseases such as HIV/AIDS and related sicknesses are some of the great challenges that continue to drag the country backwards. In addition to that, Zambia is prone to droughts and apparently, the higher cases of malnutrition were recorded between 1990 and 2000 and at the same period the country’s agricultural production plummeted. Although natural disasters might have contributed to rapid decline in human development, empirical evidence which seem to suggest that reform in the agricultural sector prompted a shortfall in maize production in the 1990s.For example, Zambia’s agricultural production is dominated by small-scale farmers and poorly equipped so liberalism of the sector and elimination of subsidies forced the cost of farming to increase. It can be argued that the neoclassical model pursued in Zambia from 1980 to 2000 negatively affected the general life expectancy and mortality rate due to poor nutrition.
Industry and Manufacturing
In effort to restore economic recovery, President Frederick Chiluba decided to abandon the policy of 'humanism' altogether and pursued neoliberal economic reforms in full. All markets were deregulated, trade was liberalized and exchange control we demolished and public enterprises sold, in year 2000 almost 70% of the Zambian economy were now in the private sector (Lambert, T).However, privatization did not encourage growth as it was intended to do because the whole industry in particular manufacturing had already suffered due to years failed structural reforms. It is very likely that, most privatized   industries we left empty as investors flee the economy for competitive markets elsewhere. During the 1990s there were many incidence of capital flight as investors sought to protect their assets, a study by  Muuka,(1997), found that  majority of multinational firms operating in Zambia between 1990 to 2000 decided to either relocate or forced to downsizing their production operation due to worsen economic climate which they were operating in. A lot of firm closed their business sighting government policy failure to protect their operations and hence decided to relocate to countries like Zimbabwe, Tanzania, Uganda and other countries. The result was high unemployment and shrinking in manufacturing had nock off effects on the country`s national output (GDP).As such, there is no or little evidence to suggest that neo-liberal economic policies improved the country`s development ranking instead the economy registered the worst economic performance in the 1990s where it was implemented in full. The negative outcome of reforms in Zambia overshadows free-market arguments which imply that the problems of underdevelopment in poor countries were caused by too much government interventions. In this regard, the neoclassical model pursued by two successive governments in Zambia have exacerbated economic crisis than solving it as indicated by following GDP growth rates over the period of reforms. The country is human development index (HDI) can also tell us a lot about the impact of free-market policy reforms assumed by Zambia from 1980 to 2000. According to the world bank (table1), Zambia registered negative growth rates most in the 1990s than any other decade and these founding seem to confirm with Muuka`s study when consideration the plight of the country`s industry
 Social welfare and economic crisis 
During the first decade of independence, Zambia adopted a policy of (Humanism) and that guaranteed social protection for majority low or middle income families. Government expenditure on pubic services such as education and health care is paramount to economic prosperity of a given country. Excellent education system and health provisions are key to a nation`s labor market conditions. For example, empirical studies by Jung and Thorbecke (2003) found that the size and efficiency of public expenditure are vital in improving socioeconomic indicators. Also other empirical studies establish that government expenditure on public sector is positively and significantly correlated to economic growth. For instance   Bose, Haque and Osborn (2007) studies concluded that government expenditure on education has long-lasting effects on economic development. These findings highlight the role and the importance of government involvement in economic activities a given country. This could be the reason why many developing countries including Zambia invested heavily in public sector after independence. In this view, social protection was guaranteed for low and middle income family in Zambia before structural adjustments. It was difficult to measure the success of government expenditure on social welfare between 1960s and 1970s due unavailable data. However, based on number empirical studies which confirms that there is a positive correlation between expansionary fiscal policy and economic growth; one might conclude that Humanism (Christianity ethics-socialism) was positively related to economic development in Zambia. Therefore the collapse of socialism and subsequent implementation of neoclassical policies in Zambia between 1980 and 2000 had a huge effects the country`s long-term economic development planning. Expenditure on public services declined steadily from 1980 to the year 2000 and this had a nock on effect on social welfare provision especially for a country like Zambia where majority of people live in poverty. Therefore, Zambia`s inter years of economic reforms coupled with natural disasters such as draught might have exacerbated the country`s socioeconomic indicators and in year 2000 the country was listed under the Highly Indebted Country (HIC). If free-market policies provide the adequately address the problems in Less Developed Countries (LDCs) then, a constant decline of  GDP per capita and socioeconomic indicators between1980 and 2000 might emphasize inconsistency of the neoliberal model.  

Conclusion

Zambia `s economic and social trends  went through different phase as the country sought to address its long-term development planning, from the 1960s and 1970s,the government was heavily involved in economic and social activities of the country. The policy of Humanism represented a more interventionist model advocated by the early development theorists such as Rostow, Lewis and others. The government`s interventionist model of development managed to build institutions   such as schools, tertiary education and a reasonable social policy in less than two decades. Given that the country required to tackle numerous challenges such as issues related to manpower, infrastructure and to build a strong social policy institution, it can then be argued that the socialist (interventionist) government of President Kenneth Kaunda managed to safeguard the country`s development needs. The 1980s up to the year 2000 represent a different policy model for Zambia; the country went through economic reforms modeled on free-market model and almost all social-economic indicators gradual plunged.
Reference
Wood.A.P and Kean.S.A, (1992), Agricultural policy reform in Zambia: The dynamics of policy formulation in the Second Republic, Butterworth-Heinemann Ltd 
Shawa, J.J, (1993) Trade, Price and Market reform in Zambia: Current status and constraints, Butterworth-Heinemann Ltd. 
Garenne, M and Gakusi, A.E, (2006), Vulnerability and Resilience: Determinants of Under-Five Mortality Changes in Zambia: World Development.34,(10),pge 1765-1787, Elsevier 
Todaro,M.P, (2000), Theories of Development: A comparative Analysis, Economic development,7th edn  pge 77-109, Addison-Wesley,UK.
Lambert.T.Short history of Zambia (online) http://www.localhistories.org/zambia.html accessed on 28/10/2012
Muuka,G.N (1997) ,Wrong-footing MNCs and Local Manufacturing: Zambia`s 1992-1994 Structural adjustments Program: International Business Review.6 (6),pge.667-687.Elsevier  Ltd.
Jung, H-S and Thorbecke,E (2003), The impact of public education expenditure on human capital, growth and poverty in Tanzania and Zambia:a general equilibrium approach: Journal of policy modeling  25(2003),page701-725, North-Holland.
Bose.N, Haque, M.E and Osborn.D.R, (2007), Public Expenditure and Economic Growth: A disaggregated Analysis for Developing Countries; The Manchester School 75(5), pge, 533-556, Blackwell publishing Ltd, UK.



Sunday, 27 May 2012

Building a new National Shrine

Our heroes are going, our heroes are going one by one and our heroes indeed played a part in our national history that it will need time in our life time to nature the same principle and values these men and women have sacrificed for the cause of this country. They endured one of the very difficult life experience to bring our freedom history can tell for sure , the war they fought were based on the fundamental values of our forefathers and these fundamental values that led sekuru and mbuya nehanda in the first chimurengwa war to drive western imperialism, defending our national identity and heritage .This is the dream that our heroes of the 21st century shared to bring down the evil and unjust society ,today they are leaving us with legacy that led to the birth of Zimbabwe. This was a very difficult moment in their life time and in an article wrote by one of our academic Dr.Magaisa , he remembered how his Granny fed the boys/vana during the liberation struggle and in his own words vana vanga nane nyara yaityisa and his grandfather was very hospitable because he share the cause, values and vision for the boys . Thanks to Sekuru Magaisa with the contribution he made in the history of our forefathers. 
Ian Smith , seen here comforted by his Wife at the State House. the man who ordered for the death of many civilian.We will never forget.

Surely these heroes once they have gone we will never see them again and never at any given time will we ever dine with them again , Hebert Chitepo, Josiah Tongogara, Chikerema , Joshua Nkomo and Msika and the unknown fallen heroes are all history. They made a foundation for us as the new generation and the future to carry on the vision and values share by those who defended our heritage during the early years of our country (Mbuya na sekuru Kaguvi). Whether you agree with me or not the sacrifice of our national heroes must be honored by all of us today and we mush measure their success by what they have achieved up to the late 1990s and measure their failure on the bases of the challenge they faced in the new millennium . Never shall we ever forget the birth of our country it was not easy it was hard final we raised the flag, now the challenge is what are we going to do as a people representing the future of the Country should we continue to hold on to their failures? 


Ladies and Gentlemen none of us today deserve a national hero’s status other than the ageing heroes; we (the future) need to build our own national heroes statuses that resemble an advance in human capital skills and developmental achievements. Why should we continue to humiliate ourselves? We have called the ageing heroes with all sorts of names, put them on sanctions and some of us wished them to die now, sure is it what we real want ?Are these heroes the worst dictators , oppressors and corrupt ? Are they the worst people in the world? Well I want you my friends and intended guest who read about this article check what life is in Russia and that what is the international response so far as compared to our heroes. In very country heroes are honored and civilian attend to all national events but we no longer want anything to do with these people cause we aspire a new life based exotic political structures which doesn’t not fit in any part of our society.

Mugabe, and other national heroes have achieved their goal to create the country’s foundation and as I am saying rite now Zimbabwe’s human development index was above 60% in all indexes up to year 2000, which was why we are a striving, educated community today. After 2000 all what had been achieved disappeared as of now we don’t know Zimbabwe’s ranking in the world. Now it’s up to us (new generation) to reignite the Zimbabwean pride the 60% or over index level. Our heroes deserve a thank you maintaining a hard stance on them is not helping, this country is now in our hands lets carry on where they have left we are the bearers in future of our national affairs, what some fellow say new Zimbabwe and that’s why we are called Zimbabwean futures . Successes come in your heart and development through interaction in that society where you live.Iam now asking you my fellow commrades to recandle our future , building a new Zimbabwean National shrine will be proud of and which resemble a modern way of thinking layed on the same principle we all share but different from those buried on the national heroes acre.

Peace to all of us and lets continues to aspire for better and provide charity wherever is required today our country faces a different challenge ranging from global warmng to neo-colonialism we must stand ready to defend our welfare and society as a new generation. We are increasingly becoming a friend to poverty and victims of our failures to addresss the changing nature of warfare (poverty) This is what this generation should fight for we need to lift one another outside the poverty line and yes we can 

We must fight poverty to the end.this is our new enemy.our new challenge.
Dear friends if we shoulder together, it is very likely we are going to win the new emerging war for every here in Zimbabwe. 

Thank you for reading and may the Lord continue to bless us Amen.

Friday, 18 May 2012

The Future of democracy in Zimbabwe the Case for MDC.


Friends, allow me today to make my own analysis of the MDC journey since their creation in 1999, incidences at Harvest House have led me to take a close look at this popular society and make my own analysis before you. I am sure you recently noticed that, over the past months I been concentrate most of my efforts on the MDC which has now disintegrated into MDC-T, MDC-M and the recently formed MDC-99 over the last few months.

The movement for democratic change was formed in the late 1990s and emerged as the only challenging party to unseat senior nationalists who had been the dominant force in Zimbabwe’s political system. The prominence of the MDC to national and global stage has no doubt a result of President Mugabe`s inflationary and fiscal policies in 1992 (structural Adjustment programs) coupled with drought in that same year the president didn’t measure the misgiving of such contraction spending. I must admit before you that it’s not clear whether the President turned a full time capitalist in those years or he wanted to please officials at No.10 and Washington in those years given both Mrs Thatcher and Bill Clinton seemed supportive to the Zimbabwean efforts. Comrades I have no doubt that, circumstances of the early to mid 1990s left millions of people unemployed as retrenchments became a common feature in Zimbabwe’s labour market. Whilst on the other hand inflation took its course causing uncertainty to social services delivery scheme in the country. For example, health care and education provisions became inaccessible, at the same time real value of individual pension funds began to shrink due to rapid increase in inflation. This scenario led to both working class and student movements to stage regular mass stay aways and strikes against their government and hence triggered the birth of a new political party (MDC) formed of workers and students activists who had been affected by cuts in government expenditures.


A jubilant Tsvangirai with Statesmen at the GNU signing ceremony in 2008.



After several years of strikes and mass stay away in the early 1990s, over 300 men and women from all walks of life converged at the women’s bureau in Hillside Harare for two day summit to decide the way forward in regards to the future .I am proud that my daddy was part of those delegates who congregated at the summit engineering a new fashion in Zimbabwean political mechanics. Yes the MDC was then formed on the basis of carrying on the struggle for workers rights, jobs creation, decency working conditions and a formidable democratic right for all but not forgetting equal distribution of resources. As such, the Movement for democratic change was built on the socialist manifesto and in 2000 general election the party almost unseat ZANU-PF; two years later Tsvangirai did very well in the presidential vote because there was a lot enthusiasm that generated higher level of expectations amongst Zimbabwean electorates. So what went wrong with the MDC as a party that belongs to the future?

The death of the MDC`s founding principle can be traced to just after 2002 presidential election following claims of rigging but Tsvangirai`s bid to overturn the votes through the courts was on several occasions without success. Since then the party shifted from being a social welfare club to a civil society up till now. There is no doubt that, transforming a political into a civil society or NGO can denature a party`s potential to govern. For example, senior leader in the party is more likely to be on the payroll with the National constitutional Assembly(NCA) or in some cases with various groups with so many interest of which in the end this have inevitably destroyed the direction of the MDC as a true political force in Zimbabwe. Therefore, the MDC as a collective voice should move away from being a NGO or civil society to a proper political party, but hurdles always exist especially if the marginal benefits of being a stakeholder in those NGOs and Civil societies are high.

In 2005 the ZANU-PF government introduced senatorial parliament, but the MDC was sharply divided and the division in the party led to constitutional violation which led to a break away faction MDC-M and MDC-T both claiming legitimacy to be the founding party. This is where everything went wrong against the party, all officials from the MDC-M were barred from entering Harvest House by MDC-Youths /militias paving a way for the MDC-T to occupy the building this kind of infighting forced President Thabo Mbeki of South Africa to intervene for years but without success and negotiations for reconciliation between the two camps went on right through 2008 general election. So in this matter it will be right to say weak political institutions and lack of formidable cooperate governance are the main causes of the MDC crash in 2005. Not to forgetting the worst attack of MDC-M (Trudy Stevenson) legislature that was blamed MDC-T and other incidences happened those days remind us the pain of democracy. Even those who claim to have formed on the basis of modernisation fail to honour their commitments to the working of the good. Recently the MDC-T has deleted party of its constitution that govern the selection of party executives, making it possible to for party president to remain on the post forever i that democracy?? On the other hand we have the MDC-M stripping elected member of parliament for not voting Paul Themba Nyathi who a party nominee for the Spear`s post since then those constituency have no representative in Parliament right now can that be justified ???

After sometime of internal wrangling within the MDC-M, a firebrand politician Job Sikhala one of the founding member of the old MDC formed his own branch of the MDC called MDC-99 and as of now he (Mr Sikhala) installed himself a President. Also events at Harvest house are not very encouraging at all which the PM have nudged it on outsider but I don’t know really that such educated members would be used by ZANU-PF or outsiders to inflict factionalism within the MDC-T?? Up to when should we continue to blame on outside elements why cants those situations be minimise? From this one would whether both MDC factions are strong enough to embarrass the importance of modern democracy and does these political entities built on strong values of modern corporate governance??

Also on foreign affairs the Prime Minister and his MDC-T increasing aborting the importance of African institutions and governments in pursuits of extending friendships overseas such the US, Europe and Australia. This will make it even difficult for them to engage with our neighbours if salt or tea bags or sugar runs, can they fly to Europe or the US or New Zealand to beg for sugar ?? In a speech at the GNU signing ceremony the PM thanked and saluted President Thabo Mbeki for his role in facilitating negotiations which led to GNU, but we must remember this is the man, who time and again attacked Thabo Mbeki, and again he thanked SADC and other statesmen happened to be there at the time.


Area of internal conflict (Harvest house MDC HQ)

For this reason, I am forced to conclude that MDC-T, MDC-M and MDC-99 have nothing to offer the Zimbabwean family unless the come out again as one and retreat to those founding principles in the late 1990s. Otherwise we are increasingly at risk if we continue to put our bets in this political party with various factions that failing to honour their own constitution which they drafted with their own hands. Now the questions, can the MDC be trusted and given a mandate to uphold our national constitutions? It’s up to you comrades this is what I have to say for now I am now tabling my analysis before for you.

Thursday, 29 March 2012

A Decade of Economic Reform in Latin America


The primary aims of the Fund are to promote global monetary cooperation, exchange rate stability, and providing financial assistance to member countries ease balance of payment deficit However, member states, would have to accept and adopt the Fund’s lending policies which require participating countries to undergo structural reforms. Hence, structural adjustments are a set of macro economic stabilisation policies applied by (IMF) to borrowing countries and are designed for borrowing individual state, Furthermore, the underpinning principles on the IMF stabilisation policies are based on free markets or neo-liberal approaches which encourage minimal state intervention in the economy .So in this regard, borrowing countries are encouraged  adopt sets of policies .This essay will discussed the Fund’s stabilisation policies  and investigate their impact on adjusting countries with respect to human development .The essay will examine the International Monetary Fund stabilization policies on Latin America over the period of 1980 to 1990.The region is volatile with a history of exceptionally high inflation rates, record of unsuccessful both monetary and fiscal stabilizations as well as substantial macroeconomic instabilities.

 Therefore, this essay analyze the impact of IMF macroeconomic stabilizations policies in the region between 1980 to 1990 and  investigating  a decade of structural adjustments in this continent may  provide a higher degree of accuracy. Latin American countries endured severe economic crisis such as higher level of debt to global creditors and worldwide recession which worsened the region’s trade deficit. Given the state of the crisis in the 1980s, many countries in this region had to seek financial assistance from the IMF to stabilise their economies as well as reducing balance of payment deficit. Therefore all countries had agreed to set of structural adjustment packages attached to the loan and those were based on neo-liberal economic theory. The main principle of neo-liberal policies aim to transfer part of the economy from the state to private owned enterprises, reduce government spending and deregulation allowing free markets as a standard for economic efficiency.
So the period (1980-1990) under examination in this easy is essential in assessing the really impact of IMF structural adjustments on this regional grouping and each policy will be investigate in detail.

The stabilization phase of adjustment focuses on demand restraint policies, usually implemented by large reductions in government expenditure via measures such as subsidy removals, public sector employment cuts. In addition to that, IMF orthodoxy stabilisation policies involve realignment of the real exchange rate through devaluation, free trade, privatization and liberalization of interest rates and tax reform. Latina American countries have been following the soviet model of economic development where the state provides almost all basic needs such as education, health care and other social welfare spending. However, as the debt crisis and decline in demand for exports continued, expansionary fiscal expenditures merely collapsed due to lack of government funding as structural adjustments required the region cut their spending power in order to create a balanced and sustained deficits. The whole region had a fiscal deficit nearly $400 billion dollars including interest payments or almost 50% of regional GDP in the early 1980s (Theberge, A., 1999).However, budget deficits were improved significant during adjusting years but it had immediate cost on economic development.  


Fiscal policy

As the region went through structural adjustment processes, there were incidents of sharp rise poverty in Latin America throughout the 1980s and the number of households in extreme poverty rose to nearly 40%. However, the most people suffered from poverty were the rural population as it affected almost half of the region’s population .Furthermore, there similar episodes in urban areas where it grow from about 25% in early 1980s to almost 60% by 1990. In addition to that, inequality in all adjusting countries and the main victims were middle-income urban groups as most those communities became unemployed due to mere collapse of the formal sector economy. Real wages are usefully economic measures in determining the region’s wealth in any given time as inflations is being taken into consideration For example, a decade of structural adjustment in Latin American economies witnessed rapid decline in real wages than the previous three decades of post war period (Woller, G.M and Hart, D.K, 1995). Also the growing gap between the rich continued to widen as government subsidies were abolished thereby creating an unfavourable economic condition for the low income household earners. On the other hand, the rich were the main beneficiary of the crisis as global capital outflows allowed them to shelter their wealth and to capture speculative gains devaluation of their national currencies. Therefore, it appears as though IMF `s macroeconomic stabilisation policies had a negative impact on economic development as contraction government expenditure caused severe economic damage to the region  witnessed with rise of poverty  and inequality( Janvry.A and Saldoulet.E,1993).

Consequently, per capita income decreased dramatically during the early 1980s through the late 1980s pushing ordinary people into poverty as regional gross domestic products due to decline in investments .For instance, years of structural economic reforms in Latin American countries were associated with decline of formal sector productivity, which should be the main pillar for economic growth by providing employment and employment creation. Also reduction of government expenditures on public services such as the health care, education, subsidies and other welfare benefits further exacerbated the situation. Given that most household was either unemployed or engaged in informal jobs and adopting tighter monetary regime made investment unlikely as borrowing and loan repayment became too costly. Therefore, the Fund’s stabilisation policies look as if they had a negative effect on economic development in the region. Furthermore, there were incidents of recurring recession in the region because of lack of major investment necessary for economic development .Economic instability worsened by increase in domestic interest rates which in turn discouraged the overall investments required by adjusting countries in the region and thus there was a general decline in the overall investment level far below the 1970s. As a result, IMF`s macroeconomic stabilisation policies are most like to cause or worsen the economic crisis than solving it and there has been a lot of criticism about the Fund’s sponsored programs in adjusting among countries as structural reforms are too harsh especial for heavily indebted countries.

Liberalism of the domestic economy

Moreover, most Latin American economies were highly regulated, safeguarding inflow of foreign investments and outflow of profits remittances as well as establishment of firms. In addition to that, prices were controlled by the government, high corporate income tax rates and trade barriers made it were put in place as a measure of protecting domestic industries (Williamson.J, 2002).Therefore, contradict IMF-sponsor ed stabilization policies to liberalise domestic markets as  too much government intervention is believed damaging economic development.  The regulatory environment seemed as though it was not favourable to encourage investments which were necessary for economic development in the region. Thus the Fund’s stabilisation policies urged Latin American countries to deregulate their economies as a way of promoting competition and a free domestic market is perceived to encourage foreign direct investments. In that regard all adjusting countries started eliminating price restrictions, removal of government subsidies and adopting flexible exchange rates as well as devaluation of domestic currencies. Given the extent of the crisis, in the 1980s such policies appeared to have exacerbated the situation in Latin American region during adjusting years. For example, inflation rose from about 40% in 1980 to nearly 130% towards the end of 1980s and then, the average regional inflation rate was about 280% (Tanzi.V, 1992).

Therefore, easing price controls, removal of government subsidies, flexible exchange rates and subsequent devolution of domestic currencies gave rise to accelerating inflation causing massive human suffering. The cost of basic consumables products such as food, fuel, transport and health care rose rapidly in almost all participating countries mainly because of inflation and cuts in government subsidies. For example, there were incidences of malnutrition throughout the region  exceeding  50 % child population in many countries with Peru encountered the highest number of malnutrition cases (Woller. G, M. and Hart. D. K, 1995). In this regard, IMF`s structural adjustments programs look as if they encouraged economic instability  in the region as  national  income declined along with a decrease in human development.

Privatization

The Fund’s macrocosmic policies required all adjusting countries to private all state owned enterprise and national resources as privatization is perceived to provide effectiveness management than state run firms. Hence, effective administrations, may lead to better productivity which was necessary for economic development fro these countries. In other words, the whole policy objective on privatization was to reduce government involvements and to present a competitive economic environment for business. Therefore, fiscal deficits in Latin America was partly caused by over spending especial funding state owned companies which were making loses because of poor management  and inefficiency. Given that liquidity became a major problem in Latin American due to the debt crisis so, privatizations seem to be an important policy instrument to adjusting countries as governments can concentrate on other investments required for economic development. Though, privatizations provide the basis for economic efficiency and present favourable conditions for long term economic development to Latin American countries in the 1980s, the perceived benefits of privatization need a comprehensive analysis. Previously, governments were the main services provider of health care, education and transport as well as other social welfare benefits to citizen privatization seemed to have exacerbated inequality among various societies. Privatization of state owned enterprises in such an extreme case seemed to have played a major role in mere economic collapse of the region because it can encourage dramatic increase in inflation driven from the micro point of view. Given that, production declined during the 1980s to 1990 those few firms remained operational could increase their prices freely thereby inflicting inflationary gap. As a result, the cost of living increased in all adjusting countries as price of basic commodities rose sharply

Trade policy

The world economy experienced economic shocks 1980s due to rising oil prices and falling demand on exports for basic commodities in the world market. Given that the Latin American countries are primary based economies and as such much of their national revenues depended on exports to fund trade deficits and paying off to lenders as well as financing public services. As a result, the recession embedded pressure on the region which relied heavily on exporting export markets over the years. There was general a decrease in government revenues and worsening of balance of payments to almost all adjusting countries due to rising trade imbalance. As a result, they needed to borrow money from commercial banks and other international financial institutions to fund the growing trade deficits. This borrowing went own till most countries in the region could not afford to repay their loans obligations because of decline in national income (GDP) and it became evident when the Mexican government defaulted in 1982 (Theberge, A., 1999).The default resulted in further dramatic decline of foreign capital inflows to the region as financial institutions became reluctant to offer new loans to these economies. As the Fund’s orthodoxy belief that longer-term economic development is best promoted by market-oriented system demanded all Latin America o adopt structural economic reforms in order to access IMF financial assistance to correct the balance of payment deficits. Empirical evidence suggest that Fund’s orthodox   successfully helped adjusting countries reduce their trade deficits of about $4 billion in 1981 to a surplus of nearly $40 billion by 1984(Woller, G.M and Hart, D.K, 1995). Several studies however, found a positive relation between IMF –sponsored programs and improve in balance of payment for adjusting countries (Pastor, JR.M, 1987) acknowledged an improvement in terms of trade for adjusting countries in Latin America.

Furthermore, IMF macroeconomic stabilization policies required Latin American countries to ease exchange controls to allow free movement of capital and this policy is believed to encourage foreign direct investments into the host countries. Faced with liquidity and persistence of trade deficits, the region desperately needed foreign capital to develop their economies but easing exchange control resulted in excessive capital outflow.  Several countries like Venezuela, Argentina and Mexico were among the worst affected countries in some case capital outflows exceeded foreign debt during structural reforms (Pastor.M.Jr, 1990).The majority of capital outflows went to pay international creditors and Latin American citizen who transferred their assets abroad, it was estimated that, the region had almost $350 billion of stock in foreign markets while external debt was less than that in 1987. The capital flight had a negative impact on economic development to adjusting Latin American countries as excess capital outflow could trigger economic disturbances and eventually become a crisis. As countries in Latin America tried to resuscitated, they faced a formidable challenge because liberalise trade and exchange control increased the rate of capital outflows. The immediate implications were reduction in earnings and decline in income needed for economic development.

Discussions  

The IMF sponsored structural adjustments appeared to have a negative impact on economic development in Latin American countries.  Economic development is measured in various social-economic indicators such as per capita real GDP, better education facilities, increased in taxable bases, job creation and improves in health provisions in a country or region. Therefore, the Fund’s macroeconomic stabilization policies were intended to create economic wealth in the region for the benefit of all Latin American citizens to have access to quality life styles but the outcome was negative. The economic crisis in Latin America continued to deepen throughout the structural adjustment years a sign that might mean some of the policy prescriptions were inappropriately adopted in the region. As a result, all major social and economic indicators in the region deteriorated rapidly during the structural adjustment years. The regional GDP per capita decreased to the 1970s level, for example the decline in Peru and Argentina was about three times worse than average regional GDP per capita. Also inflation rocketed in the same decade of IMF sponsored programs in Latin America and the worst cases were witnessed in Argentina, Peru, Uruguay and Mexico (Lago, C.M, 1997).In addition to that, the real wage rate especially in urban areas declined sharply in the 1980s to 1990 in all countries except in Colombia and in countries like Peru, Argentina, Uruguay and Mexico the average real wage was far bellow the 1980s.It seems as though ,the intended policy objective of the International Monetary Fund failed to promote economic development as portrayed by rapid decline in socio-economic indicators in the region.

Furthermore, IMF`s structural adjustments appeared to have failed to encourage the creation of formal employment in Latin America since almost all countries suffered from high unemployment during the course of structural economic reforms. The most affected countries were Chile, Colombia and Costa Rica although unemployment slightly declined in the mid 1980s it could have been caused by expansion of informal employment in that same period. Therefore, deterioration of major economic indictors in the 1980s coupled with cuts public expenditures social services inflicted incidence of poverty and inequality among various social groups. The share of government expenditure on public services such as education, health care and welfare was considerably lower than the 1970s (Lago, C.M, 1997) in countries like Chile, Peru and Mexico. Moreover, capital flight was a major problem in Latin America relaxation of exchange controls at a time of economic instability so resources were transferred abroad which further exacerbated the crisis in the region. In addition to that, IMF conditionality programs discouraged all adjusting countries from importing goods in order to reduce the balance of payment deficits. Given that, the region required capital goods such as heavy machines for primary production, restricting imports might have adverse effects on regional output (GDP).

However, overall it appears as though IMF macro-economic stabilisation policies failed to promote economic development throughout years of structural adjustment programs in Latin America. The main problem is the rapidity with which IMF performance targets are to be met and loans are repaid. Given the short-term nature of the Fund’s lending activities, borrowing countries are expected to carryout dramatic economic reforms within a very short space of time (shock therapy).As a result, the IMF orthodoxy policies failed to encourage economic development in a decade of Latin America’s structural adjustments. Contrary, it took several years for industrialized economies to develop of which the process of market-oriented reforms and modernisation in developed countries did not occur over night, yet IMF`s paradigms demanded rapidity. As a result, most countries were unsuccessful to implement all policies due to higher degree of opposition .Civil unrest in capital cities across the region such as Buenos, Aries, Caracas and Santo Domingo were common throughout the 1980s (Lago, C.M, 1997) and in some case threatened democratic elected governments. In this regards, the economic reforms of 1980-1990 in Latin America brought huge social, economic and political cost to Latin American countries  instead of promoting long-term economic development as perceived by the IMF`s orthodoxy paradigms. The fast shrinking real wage rates, rising unemployment and deregulations sparked sharp increase in prices of basic commodities as well as in government expenditures exacerbated/ worsened social-economic indicators in the region.

Though, the overall neo- liberal economic reforms in Latin America seemed to have worsened the economic crisis in the 1980s compared to their intended objective of promoting long-term economic development ;It must be said that IMF is not the creator of the crisis, these countries had a long history of economic instabilities because their economies depend on  exports of primary production .As a result, changes in the global markets had a negative economic consequences and hence the region was  prone to economic instabilities .For example the 1980s crisis was triggered by falling demand in the export market which created huge balance of payment and fiscal deficits in the region. Also Latin American governments were the main service providers of basic public services such as health care, state benefits, education and subsidies, even though the welfare system became inadequate. However, in some cases government borrowed money from banks other international financial institutions to fund public services provisions till it became clear that the region failed to repay its debt obligations after Mexico defaulted. In this regard IMF `s macroeconomic stabilization policies can not be viewed as a complete failure to promote economic development in the 1980s of adjustments in Latin America. Given the magnitude of the regional recession and falling export revenues such as expansionary public services were detrimental effects on the social security systems became too expensive to finance and virtual covered entire populations (Lago, C.M, 1997).Therefore, economic reforms in Latin America were necessary to encourage economic development but the cost of adjustment could have been   by borrowing countries due to failures of implementing those IMF policies.


Conclusion

The International Monetary Fund`s macroeconomic stabilization policies in Latin America seemed to have further worsened the economic crisis in the region as can be portrayed by deterioration of major social and economic indicators in the region. For example, over a period of 10 years of regional economic reforms there were incidences of poor health, unemployment and shrinking real GDP which had a negative impact on growth and development. In addition to that some the Fund`s macroeconomic policies such as deregulation which in turn led to rising cost of consumer goods and impose direct impact on the poor and the working class. Whilst, there is no enough evidence to proving that all IMF policy prescriptions were fully implemented it seems shock therapy was not to improve regional economic development even if those reforms were necessary. In my view IMF orthodoxy policies could have been accompanied by some kind of   social-democratic or rather social-liberal vision that prevailed in the Czech Republic immediately after 1989 (Lorenstein, M,1995) The Czech social-liberal model was intended to cushion the effects of the economic transformation though a range of socio-economic measures as part of preparing for neo-classical policies. Therefore, if extra measures were adopted in Latin America to cushion the cost of structural adjustments in Latin American countries, the Fund`s macroeconomic stabilization policies might have yield positive economic recovery thereby encourage economic development. There were serous omissions in the IMF policy prescriptions which range from social and political issues to prevent the Latin American crisis to reoccur and hence all economic indicators further deteriorated.