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Senegal: Debt and Destruction

AfricaFocus Bulletin
Nov 4, 2003 (031104)
(Reposted from sources cited below)

Editor's Note

As the U.S. Congress approves $87 billion for the U.S. occupation of Iraq, long-standing promises by rich creditors to provide debt "relief" of some $49 billion for 42 countries remain unfulfilled, and largely off the radar screen for policymakers. Yet debt remains a crippling burden not only for the 34 African countries that qualify as Heavily Indebted Poor Countries (HIPC), but also for major African powers such as Nigeria and South Africa.

This issue of AfricaFocus Bulletin contains the summary of a new report on Debt and Destruction in Senegal by Dembe Moussa Dembele, director of the Forum for African Alternatives. The summary and full report are available on the website of the World Development Movement at: http://www.wdm.org.uk

A separate issue of AfricaFocus Bulletin, also distributed today, contains excerpts from a new analysis of the failures of the HIPC initiative, released in September by Jubilee Research.

+++++++++++++++++++++++end editor's note+++++++++++++++++++++++

October 2003

Debt and Destruction in Senegal
A study of twenty years of IMF and World Bank policies

By Dembe Moussa Dembele

Electronic versions of the full report are available at http://www.wdm.org.uk

For hard copies of the full report please contact tim@wdm.org.uk World Development Movement
25 Beehive Place, London SW9 7QR, UK
+44 (0)20 7737 6215 http://www.wdm.org.uk wdm@wdm.org.uk

Executive Summary

From the early years of Senegal's Independence up to the late 1980s the State played a major role in economic and social development, due to the dearth of an indigenous private sector and the necessity to meet some of the most pressing needs of the population. The legitimacy and stability of the post-Independence political system depended in large measure on its ability to satisfy those needs. During the 1960s and 1970s, Senegal achieved some significant results, thanks to the performance of the agricultural sector and the strength of its exports.

However, by the mid-1970s, a succession of droughts, combined with a series of external shocks, led to an economic downturn. The country's external debt reached unsustainable levels, prompting the government of the day to turn to the International Monetary Fund (IMF) and the World Bank. From the late 1970s, until the present day, these institutions have dominated economic policy in Senegal and in other Sub-Saharan African countries through what are known as 'Stabilisation Programs' and 'Structural Adjustment Programs' (SAPs).

The core policies associated with stabilisation and SAPs are cuts in public spending; tight monetary and fiscal policies; export-led growth; trade and investment liberalisation; deregulation of internal prices; dismantling of the public sector; privatisation of State-owned enterprises and of essential services; rolling back the State and eroding its ability to formulate autonomous national policies.

However, far from rescuing Senegal from its debt problems, the implementation of such policies since the early 1980s has aggravated the debt burden and undermined the achievement of poverty eradication. Debt ratios have literally exploded, despite 13 rescheduling arrangements with the Paris Club of bilateral creditors since 1981. In 2002, the external debt accounted for 70 per cent of the country's Gross Domestic Product (GDP) and for more than 200 per cent of its export revenues. In addition, more than 40 per cent of the bilateral debt was composed of arrears, which is an indication of how unsustainable Senegal's debt burden has become.

The deepening of the debt burden ran in parallel with the deterioration of the economic and social situation, due in large part to the numerous policy conditions attached to loans made by the IMF and the World Bank. Sweeping trade liberalisation and deregulation combined with the dismantling of the Senegalese public sector, from the mid-1980s to the late 1990s, led to the collapse of both the agricultural and industrial sectors. The agricultural sector, which employs more than 70 per cent of the population, has been severely affected by liberalisation and the dissolution of many state controlled enterprises (known as parastatals). As a result, peasants and small-scale farmers have seen their livelihoods deteriorate in the face of the invasion of the domestic market by cheap and subsidised imports from developed countries.

It is against this background that Senegal entered into the Heavily Indebted Poor Countries (HIPC) Initiative, in June 2000, following its submission of an interim Poverty Reduction Strategy Paper (I-PRSP). Under HIPC, Senegal's debt is expected to be reduced by US$850 million, US$488 million in Net Present Value (NPV) terms, over a 10-year period. However, reaching the 'Completion Point' and receiving this debt relief (which will account for only 17 per cent of Senegal's total debt) is contingent upon fulfilling a range of structural policy conditions set by the World Bank and IMF. In other words, debt relief is being used as yet another lever with which the IMF and World Bank can push through more free market policy reforms.

This is despite the evidence that the past twenty years of IMF and World Bank policies in Senegal have been unsuccessful in significantly reducing poverty. Low or stagnant economic growth, a deterioration in some social indicators and only modest improvements in others has characterised the period of 'structural adjustment'. For example, the percentage of the Senegalese population that is undernourished has increased over the past 10 years from 23 per cent in 1990/92 to 25 per cent in 1998/00. Poverty is now so widespread that nearly 80 per cent of the population live on less than $2 a day. In some areas, Senegal's social indicators are below the average for Sub-Saharan Africa. In health and education, Senegal ranks low on the continent's development scale.

This poor performance in relation to others has led to Senegal dropping down the human development index. And in 2001, some twenty years after the World Bank and IMF started dictating economic policy, Senegal was admitted to the category of Least Developed Countries (LDC).

A recent example of the failure of IMF and World Bank policies is the forced liberalisation of the groundnut sector, with the dissolution of SONAGRAINES (a parastatal) in 2002, which provoked a near state of famine in rural areas. As a result of the 'reform', less than 30 per cent of the groundnut crop was collected, farmers lost millions of dollars in income, the government had to step in with a bail-out package worth some US$23 million and economic growth was cut in half. Despite this failure, the IMF and World Bank seem intent on pushing further as the liberalisation of the rest of the groundnut sector is one of the conditions for Senegal to receive debt relief. This places Senegal's government in an impossible position: implement a policy that could spell disaster for your economy or not get debt relief.

Another recent case of failure is the attempt to privatise SENELEC, the State-owned electricity utility, in 1999. Instead of the predicted 'efficiency gains', transferring control of the company into the hands of a French-Canadian conglomerate, Elyo-Hydro Quebec (EHQ) resulted in profit outflows, no new investment and increased power outages which contributed to a 1.5 to 2 per cent decline in Gross Domestic Product (GDP). Again, the privatisation of SENELEC is one of the 'structural conditions' for Senegal to fulfil in return for debt relief.

Both examples are also an illustration of how IMF and World Bank policy conditions are undemocratic. The two institutions have used their financial leverage to undermine democracy and impose unfair and unpopular policies in countries subjected to their policies. In Senegal, as in many other African countries, the State has been weakened to the point that its ability to perform some of its basic duties has been impaired. The democratically elected National Parliament is bypassed and ignored. Senior civil servants feel more accountable to the two institutions than to their people. As one Union leader has pointed out, "Senegalese ministers fear more the World Bank than God."

With the advent of 'country owned' Poverty Reduction Strategy Papers (PRSPs), the World Bank and IMF claim to be implementing policies supported by the public. Yet the reality in Senegal is that the PRSP is mostly inspired by the macroeconomic policy framework proposed by the IMF and the World Bank. Despite the rhetoric of 'national ownership', the Senegalese PRSP, like other African PRSPs, reflects more the views and priorities expressed by these two institutions than the priorities identified by the poor and other vulnerable groups. Thus, instead of advocating a change of direction, the Senegalese PRSP endorses the same suite of discredited policies, calling for more privatisation, more liberalisation and more deregulation. In particular, it insists on 'private sector development', which, if past experience is anything to go by, means selling off the country's public assets and natural resources to multinational corporations from the industrialised world.

Ignoring the views of the poor undermines the legitimacy of the PRSP process and undermines the legitimacy of the policies the government will be pursuing. This democratic deficit is not only likely to lead to further social unrest but will also not deliver on the achievement of the Millennium Development Goals (MDGs) themselves mostly only a half-way point in eradicating poverty. If current policies are pursued, Senegal is only likely to achieve one of the eight key MDGs by 2015.

As well as being unsuccessful and undemocratic, the conditions imposed on Senegal by the World Bank and IMF are also unfair. The ongoing process of Bank and Fund initiated trade liberalisation is undermining the negotiating position of Senegal in the World Trade Organisation (WTO) and in bilateral or regional trade agreements involving industrialised countries. These rich countries know, for example, that Senegal has been pushed to reduce its average agricultural tariffs to a level (18 per cent) well below the 30 per cent allowed under WTO rules. The influence over Senegal's trade policy the industrialised world exercises through the IMF and World Bank means that Senegal has little to bargain with when it comes to trade negotiations. As one senior Senegalese civil servant states, "Senegal and other UEMOA countries have little bargaining power in trade negotiations. Having made sweeping unilateral trade concessions through repeated liberalisation policies imposed by the International Financial Institutions (IFIs), they have given up all the cards they could have used at the WTO, or elsewhere."

Another aspect of unfairness is that Senegal is being told to implement a series of policies such as trade liberalisation and investment deregulation which remove regulations that most, if not all, industrialised countries used during their own development processes. Placing controls on capital and profit repatriation, implementing investment policies that favour domestic companies, excluding certain sectors from foreign investment and using tariffs as part of an industrial policy to develop domestic businesses. These policies have all been used by rich countries but are now, through the IFIs, being restricted or eliminated in Senegal.

It is simply not consistent for industrialised government ministers to tell developing countries to stand up for their interests in the WTO whilst at the same time - through the World Bank and IMF systematically undermining their negotiating position by making loans and debt relief conditional on unilateral trade liberalisation. It is also sheer hypocrisy for rich countries to tell Senegal, 'do as we say, but not as we did'.

In conclusion, it is clear that more of the same policies will only lead to an impasse and to a further disintegration of the Senegalese social fabric. There is a need to contemplate alternative policies, that are genuinely home-grown and reflect the fundamental interests of the Senegalese people, especially the poor, who are the overwhelming majority of the population. The Senegalese Government must strive for independence in its policy-making. In concert with its partners within the Economic Community of West African States (ECOWAS), Senegal should accelerate the integration of the sub-region in order to increase its chances of resisting IMF and World Bank pressure and formulating policies that respond to its citizens' concerns and provide their basic needs.

At the same time, industrialised country governments need to fundamentally rethink their approach to the World Bank and IMF. Through their decision-making power in the IFI's, such governments - including the UK - are ultimately responsible for the policies pushed by the Bank and the Fund. If these governments are sincere in their commitment to achieving the MDGs, there has to be a radical change of direction.


AfricaFocus Bulletin is a free independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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