Governments Take Hard Hits to Qualify for World Bank Loans

By Gumisai Mutume, InterPress Services, 23 February 2001

WASHINGTON, Feb 22 (IPS)—Even in the face of widespread discontent and several changes in administration, the government of the southeast European country of Moldova stuck to austere conditions in order to secure a structural adjustment loan from the World Bank, an official document leaked from that institution shows.

The Bank document outlines how successive governments in the former Soviet republic stumbled and collapsed in the face of opposition to the structural adjustment conditions of a 40 million dollar loan agreed in 1999. The loan was released in two tranches, the last in December.

Under the loan terms, the World Bank told Moldova to privatise farms, the energy sector, cut subsidies and other social assistance programmes, privatise wineries and tobacco companies and ready the telecommunications company for privatisation.

“In a number of areas, implementation of the programme has advanced significantly beyond the originally agreed targets,” noted the confidential tranche release document for Moldova.

The document outlines government timelines, marking out areas where significant progress has been made and, like the proverbial schoolmaster, patting the state on the back where it complies.

The areas of progress include agricultural land privatisation, removal of transport subsidies and efforts to sell the telecommunications company to foreign investors. In one instance, the government closed 63 village hospitals to meet targets of reducing its energy bills.

Under the direction of the Washington-based Bank, nearly 1,000 state and collective farms have been privatised and 800 liquidated. The government also agreed to abstain from interfering in the grain market and discontinued direct credits and subsidies to the agricultural sector.

Many of Moldova's 4.3 million people depend on the land. With per capita income averaging 370 dollars in 1999, half the population of Moldova, one of the poorest countries in Europe, live on less than a dollar a day.

Moldova became independent in 1991 and joined the World Bank the following year. It introduced a new currency in 1993, but between then and 1996 the country's economy did not grow. In 1996 alone, it declined by 7.5 percent.

Nancy Alexander of the non-governmental Globalisation Challenge Initiative says Moldova's tranche release report is “a fairly typical document”, especially for countries that are heavily indebted.

“It is profound and fairly sweeping … going for the transfer of ownership of all major public assets such as farms, land, electricity, gas and telecommunications companies.”

So why do governments do it?

“What happens is the ability of the international financial institutions to starve these countries of resources, not only IMF and World Bank loans but also of private capital by letting out the word that the country is not a good adjuster,” says Doug Hellinger of the Development Group on Alternative Policies.

“Initially a number of countries resist, and then along the way governments are put under so much pressure they give in.”

And some pay the price for giving in. In Moldova, a three-party coalition known as the Alliance for Democracy and Reform, although committed to seeing through the reforms emanating from Washington, could not muster enough political support to continue and in January 1999 Prime Minister Ion Ciubic resigned, setting off a period of political upheaval.

A new government led by Ion Sturza was voted in by parliament, but by a margin of just one vote. It soldiered on with even deeper reforms. But support remained tenuous, especially once the government began taking significant steps to liberalise the energy sector. And at the point when it needed to push through the privatisation of state-owned winery and tobacco companies, eliminate energy and transport subsidies and pass the 2000 budget, Sturza's government fell.

A new government, led by Prime Minister Dumitru Braghis took over where Sturza had left off. It too found the going tough and had to resort to significant amendments to the Constitution in July that year which gave the prime minister more authority.

The situation has been much the same with Ecuador. During a brief spell of seven months in office, President Abdala Bucaram attempted to deepen economic reforms that previous governments had implemented in a stop-and-go fashion beginning in 1982. He was forced out of power by massive street protests in February, 1997.

Such protests have accompanied efforts at economic reforms in the South American nation. In January last year, they claimed another victim—President Jamil Mahuad, who was forced out of office.

Vice-president Gustavo Noboa who assumed power after Mahuad's departure with backing from the armed forces, has continued the unpopular reforms. He too has encountered a series of stand-offs with indigenous communities, protesting massive price increases sanctioned by Washington.

The case of Mozambique shows how the international financial institutions (IFIs) hold unchecked power to impose policies and override public opinion. In 1994 the government imposed a tax on the export of raw cashew nuts—the backbone of the economy since the 1960s—in an effort to save the local nut processing industry.

However, it was ordered to adopt textbook free-market policies by the Bank and remove the taxes, a main condition of the Bank's 1995 programme in the southern African nation. Trade unions and civil society were vehemently opposed to the policy, but the government complied and began reducing the taxes.

But two years later Washington changed its position, admitting that the Bank had erred. Independent studies had supported Mozambique's assertion that removal of the taxes would promote the export of raw cashew nuts to countries that process them such as India, in turn dismantling the local processing industry.

For Moldova, the Bank is not seeing any internal bad advice which may delay what it believes is a bright future for the country.

“Good prospects lie ahead,” Carlos Elbirt, the Bank's resident representative in Moldova said before the release of the loan in December.

“To make them a reality, we would like to stress the need to maintain a stable political climate, to continue much needed privatisation, to increase the efficiency of social expenditures.