TANZANIA : A TIME FOR DECISION (ON IMF)

The rains have come early this year in Tanzania, bringing the promise of a second successive year of good crops with only the threat of some damage being caused by the spread of the maize borer worm.

However, even two seasons of good harvests are not going to be adequate to rescue Tanzania from its desperate economic crisis and decline, which has now lasted for almost thirteen years beginning with the quadrupling of oil prices in mid-1973, compounded by adverse international trading conditions, drought and a number of major errors in Government policies.

Julius Nyerere’s successor, President Mwinyi, faces the need to decide in the next few weeks whether his Government will finally come to terms with the International Monetary Fund (IMF) to assure an injection of fresh capital aid and foreign exchange or whether to try and overcome the country’s economic crisis by relying on its own resources involving major sacrifices for years to come.

Tanzania’s most loyal foreign aid givers, the four Nordic countries, have collectively advised the Government that the level of their future aid will depend on practical evidence of structural economic reforms.

The political debate over whether to reach an agreement with the IMF or not, though not aired much in public, is being waged with passion and vigour behind the scenes. The signs are that the Government is itself deeply divided, as is the Party. More than that, some of the leaders themselves appear to be divided in their own minds. They do not have much time to decide on their future course of action since the national budget is due to be presented in June. If the decision goes in favour of a deal with the IMF, it will require a decision within the next month at the latest. The preliminaries with the IMF have already been largely completed.

The economic debate is being conducted at the same time as the leadership faces the need to clarify the ambiguous relationship between the Government and the ruling party. So long as Julius Nyerere was both President and Party Chairman, the institutional relationship between Government and Party was difficult but not impossible to handle. The situation is quite different now that the country has a powerful figure in the form of Nyerere at the head of the ruling party – which is responsible for determining policy – while the Government has a new leader (Mwinyi), who is expected to assert his independence.

Mwinyi and Nyerere are in no sense to be seen as rivals; in fact, they complement each other. However, Nyerere is now concerned with rebuilding the authority and organisation of the Party which has lost some of its popular base in recent years; while Mwinyi is being looked up to by the country to demonstrate that he can fill the role of an independent President.

Critics of past Government policies featured prominently at an economic policy workshop convened by the Finance Minister to discuss policies and strategies for economic recovery. One of the most widely discussed papers was presented by two University economists, Professor Idulu and Dr. Lipumba. They summed up the nature and extent of the economic crisis as a slowing down of economic growth, declines in real per capita income, high rates of inflation, severe reduction in import and debt-servicing capacity, and a general breakdown of the Government control systems exemplified by the growth of parallel markets including a growing black market. Real growth in the gross domestic product (GDP) declined to an average of 0.72% per annum between 1979 and 1984 – down from the average of 2.9% between 1976 and 1978.

If one takes into account the rate of population growth this means that there has been a negative growth rate since 1979 amounting to minus 0.67%.The combined effects of a slowing down of production and high inflation reduced real incomes of both rural and urban dwellers.

According to ILO estimates for 1985, rural incomes have declined since 1979 by 13.5% and for urban wage-earners by a massive 65%.

The overall decline of Tanzania’s foreign trade balance has been spectacular. In 1977 the country still had a surplus of about £27 million; by 1984 the negative balance had reached almost £105 million. Real imports declined by 42% between 1978 and 1982.

The country’s inability to pay for imports led to an accumulation of arrears of payments amounting to $764 million during the 1980-84 period. During the past six years export earnings financed less than half the cost of imports. This meant increasing dependence on an external inflow of funds to finance even the reduced level of imports.

The volume of exports has fallen continuously from its peak in 1972. Although there were other factors accounting for this fall – such as the bottlenecks caused by a lack of foreign exchange – Ndulu and Lipumba insist that this is only a partial explanation. In their view the basic problem has been an “incentive structure and institutional set-up” that, over time, has discouraged peasants and farmers from an increasing production in general, and export crops in particular.

They add that “probably the more poignant problem of the agricultural sector is the inefficient crop marketing and input delivery system and policy uncertainty that faced economic agents in the agricultural sector.-“

The only sector that has persistently maintained high rates of economic growth from the 1970′ s has been the public administration. The authors stress the widespread laxity in management and public administration and the lack of accountability at all levels. And they argue that “without linking rewards to performance and responsibilities. it is unlikely that a sustainable recovery can be initiated even when the level of resource inflow is increased.” They criticise the institutional rigidities and unresponsiveness to economic changes that characterise governmental and parastatal organisations, as well as excessive centralisation.

The two economists come out firmly in favour of an agreement with the IMF which they say is necessary to unlock bilateral aid resources. Even then they envisage as “shock treatment” a period of eighteen months with a five year horizon to achieve sustained adjustments of the economy. The additional inflow of foreign resources, they suggest, should be at least $335 million for immediate needs.

They also propose adjusting the exchange rate to 40/- to a dollar – in fact, a substantial devaluation; but the effect of devaluation of exports should be passed on to agricultural producers. Nominal prices should be increased by at least 65%.

“Peasants”, they say, “should get a strong message that it is worth their while to increase production of export crops.” Finally, they believe it is possible to increase both export and food crops if marketing constraints are removed and the incentive to produce agricultural crops is restored; and they argue in favour of creating “a more liberal trade environment.”

Colin Legum. (Third World Reports)

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