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Malawi: The Impact Of Structural Adjustment - 2002-10-21

Malawi’s food shortages have called into question the wisdom of the government’s adoption of free market reforms. Critics say they have contributed to high food prices, which many Malawians can not afford. Others say government mismanagement and bad weather-- and not economic reforms – are behind the crisis.

Food shortages brought on by drought and flooding are not new to southern Africa. The last weather related famines in Malawi were in 1992 and 1949. But critics say Malawi was able to cope better then. They say so-called structural adjustment policies advocated by international donors over the past 10 years have made Malawians poorer and malnourished – and less able to fend off the current food crisis. Oxfam says poverty in Malawi has risen from 60 to 65 percent over the past five years. And the group says that free market policies have contributed to the drop in food production and distribution over the past year.

Max Lawson is a policy advisor for Oxfam on the International Monetary Fund and World Bank and on poverty reduction strategies.

He says the Malawi government’s agricultural policies are contradictory. He says the government is torn between several actors: on one side are voters who keep it in power – and who need price controls to keep food like maize affordable, especially during seasons where little food is grown. On the other side are donors like the United States, the European Union and scores of non-governmental organizations who often favor some degree of free market reforms. In at least once instance, Mr. Lawson says the government adopted contradictory advice, which he says contributed to a perilous drop in food production.

He says, "Three years ago, the British government and the European Union together at first with the World Bank introduced a targeted fertilizer subsidy, which involved giving out small packs of fertilizer to all small holders in Malawi. The objective was food security – enabling everyone to produce more food. It was enormously successful for the first two years. But after pressure from the other donors the policy was reevaluated. The World Bank pulled out of that. They decided instead of giving it to every single farmer, they’d scale it down to half of all farmers and then the next year to a quarter of all farmers....In the first year when it was given it was given to all farmers, contributed .enormously to the amount of food, but in the final year, it was given to only a quarter of all farmers, and it was very badly targeted. So it was an example of good policy by one donor eroded and contradicted by another and by the Malawi government trying to please everybody [by adopting two contradictory policies)."

Donors are blamed in other ways for Malawi’s food shortages. Last year, the International Monetary Fund advised the government to sell some of its 167 thousand-ton grain reserves to help offset budgetary deficits. A European Commission study had concluded that up to 60 thousand metric tons would be a sufficient buffer in case of a food emergency. Such a crisis in theory would be picked up by an early warning system six to eight months ahead of time. However, Malawi’s National Food Reserve Agency sold off all of the grain reserves – allegedly to private traders who hoarded the food and later tried to sell it at exorbitant prices. Meanwhile, the early warning system never detected the coming food emergency. Donors say that’s because the government statistics were flawed.

Critics say privatization has weakened the state’s ability to respond to such crises. With liberalization, state marketing boards are being dismantled – so poor subsistence farmers in rural areas must depend on private traders to buy and sell maize and other foods. They often are accused of being unwilling to take their vehicles in areas with poor roads – and areas that are not profitable. These same regions were once served by depots of the state run marketing boards

Government subsidies on fertilizers and seeds have also been removed in favor of private suppliers. But many of the poor can not afford to pay the new prices. Critics note that many Western countries continue to subsidize their own farmers.

The situation has led some critics like Collins Magalasi to question the power of their own government. Mr. Magalasi is the national coordinator of an umbrella group of organizations that monitor government policy called the Malawi Economic Justice Network

He says, "The World Bank and IMF seem to have more power than our legitimate government because they are able to tell it in what direction to move in. [Former authoritarian ruler] Dr. [Hastings Kumuzu] Banda used to say this was not good for the country and he was not going to do it. But in a democracy, our own leaders do not seem to have the power to say no – they only say yes. As far as the economy goes, it looks like as far as the economy goes, it is the World Bank and the International Monetary Fund that is running [policy] and the government that is implementing it."

Mr. Magalasi favors price controls and rationing. He sees no reason for further privatization and thinks parastatals can be improved with reforms and better management. He says abandoning parastatals is abandoning government’s commitment to caring for the people.

The country manager for the World Bank in Malawi, Dunstan M. Wai, has a word for the critics:

He says, "People blame everything that goes wrong on structural adjustment policies. They were simply meant to remove distortions, controls in the economy, and create an enabling environment for the private sector but also make government more efficient and effective. They were not ill conceived. Also, we emphasize the sequencing and selectivity of the policies and we try to identify the strategic entry points, which would produce multiple effects and a positive impact on the ground."

Mr. Wai says the World Bank works only in consultation with a government. In fact, he says the World Bank has only returned to Malawi this year after a three-year absence. He says the Minister of Agriculture, Aleke Banda, approached the Bank for help in the current crisis and in boosting the country’s agricultural development. As a result, he says the World Bank is considering a 50 million-dollar credit – which will likely include grants to help the government with food imports and other aspects of recovery. As for the future, he thinks Malawi needs to identify its role in the developing southern African market. Most economists do not think the heavily agricultural country is suited for industry -- but Mr. Wai says tourism is a possibility, as is the development of its agriculture – especially for potential exports like pineapples, mangoes, and horticultural produce. These could be marketed with better regional rail and road links, and improved storage facilities.

Roger Yockelson has a similar idea. He’s the Mission director for Malawi of the United States Agency for International Development.

He says USAID is helping to develop the National Association of Small Farmers of Malawi, or NASFAM. The group is encouraged to adopt strategies that will help them stand on their own, without subsidies.

He says, "In the south there are farmers who have been convinced to plant chili peppers and will export this year 100 thousand tons to Europe. They will have the money to buy what they need. They are on the playing field. Up north, I visited a group of rice farmers. They have put themselves together and democratically elected their representatives... sharing information. They get support from us and from NASFAM...they got 25 percent more at the local markets for rice (at the market) than their neighbors. That brings them to the playing field. So while there is a period of time and certain sectors that will need (financial)support, we try to do it in the least disruptive way while at the same time bringing them back onto the playing field."

Mr. Yochelson is not dogmatic about privatizing all state run businesses. However, he is a firm supporter of the effectiveness of the market, and believes it can work for Malawi. But he says it’s too soon to condemn free market economics in Malawi. He says it’s only been eight years since the end of authoritarian rule – with its rigid ways of practicing governance and doing business.

He says, "There are going to be times that the democratic process is going to create a great deal of sluggishness. And it may cause political and economic suffering. It may be that that in a given country at a given moment in its history that is what they should be (experiencing). If you have an open wound the best thing to do may not be to put mud on it. It may be to let it bleed and rinse it out; it hurts and disables you for a while but when it heals you will be stronger forever. Maybe that is what has to happen in a society including in the private sector."

Donor groups like Oxfam also use the analogy of the ill patient in their discourse. They say that by dismantling the state’s role over the economy in such short period of time, reformers may be curing the patient -- by killing him. But both critics like Oxfam and donors like Western governments have reached a consensus on economic life support. They do agree for the most part that subsidies may be needed in food emergencies, and that the state can likely play a more effective role in helping to develop markets – especially in rural areas where private traders have no incentive to go.