Testimony of Njoki Njoroge Njehû

Director of 50 Years Is Enough: U.S. Network for Global Economic Justice

U.S. House Banking Committee
Subcommittee on Domestic & International Monetary Policy

April 21, 1999

I wish to express my gratitude for having been invited to testify before this subcommittee as it considers authorizing funding for various international financial institutions. I come from Kenya, but now work here in Washington as the Director of the 50 Years Is Enough Network, a coalition of over 200 U.S. organizations pressing for the fundamental transformation of the most influential of the international financial institutions, the International Monetary Fund (IMF) and the World Bank.

I am especially pleased that you have asked me, as an African woman, to address you as you decide whether to agree to new financing for the IMF's Enhanced Structural Adjustment Facility (ESAF). It is not often that those of us who are from or live in countries under the IMF's tutelage are asked to speak about our experiences.

Mr. Chairman, your letter of invitation asked me to assess "the needs of African countries and the effectiveness of ESAF as a debt relief mechanism." In brief what African countries need is immediate cancellation of their debts, which continue to cause massive and unnecessary suffering to millions of people. That debt cancellation MUST be delinked from structural adjustment programs (SAPs), such as those designed under ESAF. Regarding ESAF and debt relief, ESAF is not an effective debt relief mechanism, in fact it leads to increased debt burdens.

The mechanisms being considered for this financing ö selling part of the IMFâs gold stocks and returning a $300 million reimbursement due the U.S. from an IMF account ö are new, and signal a reluctance to simply ask for fresh funds, the usual way of financing ESAF. That reluctance should raise your antennae: this is now a controversial program. Allocating funds that are not currently in the U.S.âs possession may be calculated to make the decision less controversial. But for literally millions of people in Africa and other impoverished regions of the world, how ESAF is funded is immaterial; the question is whether it will be funded and for how long, and whether any outside body will maintain any oversight.

You should bear in mind that ESAF is far from broke: recent calculations suggest that if the IMF used the ESAF capital base, it could continue lending operations until 2015. What the IMF seeks with these unorthodox funding mechanisms is a self-sustained ESAF -- a program which, after it gets one more injection of capital, will be able to live off repayments and never have to come to the U.S. Congress again for an appropriation. That means that if you approve the use of gold sale proceeds this year, that will likely be the end of any accountability to outside sources for a program which will be able to extend into perpetuity.

For people in indebted countries, this is a monumental decision. You play a vital role in it because the U.S. Congress is the only open, elected body in the world with both the power to affect how the IMF conducts itself and the inclination to, at least occasionally, use that power. Given the gravity of the situation in Africa, and the frustration so many of my fellow Africans feel in not being able to influence the IMF at all, I feel rather like an innocent person on death row, coming to you, as one would to the Supreme Court, with a last-ditch appeal. The ramifications of your decision on funding ESAF could be monumental for the entire African continent as well as dozens of other countries and their peoples.

Is ESAF working? Is it, as the IMF claims, a suitable vehicle for debt relief? According to the IMFâs own reports, ESAF is not achieving the economic goals the IMF proclaims for it -- namely "high and sustainable growth and external payments viability." An internal review of ESAF, conducted by the IMF in 1997 and surveying 36 borrowing countries, found that annual real per capita GDP growth for those countries averaged zero percent (0%). Zero. Developing countries not under ESAF programs averaged 1% real per capita GDP growth, suggesting that in choosing economic policies, developing countries would be wise to look at the IMF prescription and go a different direction. In sub-Saharan countries with ESAF programs, real per capita incomes declined by an average of .3% annually over the period of IMF adjustment from 1991-1995. In terms of "external payments viability, " consider that debt as a share of GNP for ESAF countries increased from 71.1% to 87.8% between 1985 and 1995 -- again according to the IMF's own study. ESAF is not an instrument for debt alleviation.

If ESAF is a failure in economic terms, it is a tragedy in social terms. Per capita spending on education in African countries implementing ESAF programs actually declined between 1986 and 1996, by an average of .7% per year. Health care facilities around the continent have been forced to impose and raise user fees on a population with fewer and fewer resources. Zambia spends $4 per person per year on debt payments, and $1 per person on health. The number of births attended by trained health personnel has decreased dramatically in most African countries, including my own, in the last few years. In Zimbabwe, which started structural adjustment relatively late, in 1991, per capita spending on health care dropped from about $6 to about $4 between 1990 and 1994. Maternal mortality during childbirth in Zimbabwe doubled between 1990 and 1993, and the World Bank estimated that the cost of treating Zimbabweans with AIDS would exceed the 1996 health budget by 400%. A review of ESAF commissioned by the IMF concluded of Zimbabwe, "There is no doubt that the previous [pre-ESAF] trend of improving health outcomes was reversed during the period of the reform program." Across sub-Saharan Africa, enrollment rates at the primary school level fell from 77% in 1980 to 67% in 1990; public spending on education during the same period fell from about $11 billion to under $8 billion. In 1981, there were ten thousand people for every doctor in Kenya; by 1994 that ratio had gone up to nearly 22,000 people for every doctor. In Uganda, just to our west, there were 661 people for every hospital bed in 1981, while in 1994 there were 1,092 for every bed. In Ghana, often cited as a structural adjustment success, the percentage of infants with low birth weight has gone from 5% in 1988 to 17% in the period of 1992-1995. This is no way for a region to recover, and yet these are the priorities recommended for my people by the IMF.

When I was a young girl growing up near Nairobi, Kenyatta Hospital was the pride of East and Central Africa -- a sophisticated regional care center. When I visited my aunt there in 1997, she was sharing a bed with another patient, sleeping head-to-toe. Most wards had no beds because of lack of resources, and all the beds had two people in them. Guards used to check visitors to prevent them from bringing food in from the outside; now the guards are gone and if you don't bring food your relatives simply won't eat. My aunt was lucky that the dollars I brought with me could buy the medications she was prescribed, and which we had to purchase elsewhere and bring back to the hospital for the nurse to administer. Not everyone has relatives in the U.S., or can get to Kenyatta, the best public hospital in Kenya. And keep in mind that Kenya is far from being one of the poorest African countries.

About a year ago, I learned that a friend in Uganda was desperately trying to raise money to take her father, who had a brain tumor, to Kenya for medical treatment -- probably to Kenyatta. No hospital in Uganda could treat him any further; for the surgery he did have there, his family had to provide clean water for the doctors to scrub with. Keep in mind, please, that Uganda has also been touted by the World Bank and IMF as a "success story" of structural adjustment.

Because of my experiences, because of the well documented impacts of structural adjustment policies in Africa and elsewhere, I am here today to ask you to deny any authorization of funds for ESAF, including the approval of gold sales whose proceeds would go to ESAF. Mr. Chairman, I would also like to submit, for the record, a letter to members of Congress signed by over 40 national, local and international organizations which join the 50 Years Is Enough Network in making that call. There is no contradiction in an African coming to the U.S. Congress to ask you to cut money to a program designed, supposedly, to assist African countries. That's because, as the statistics and experiences I've related suggest, ESAF, far from helping Africans, has for over ten years been doing great harm to our economies and our day-to-day lives.

I know that the IMF claims that it does not force policies on any country, that it has no such power. And certainly it must sound strange when I say that these policies are hurting Africa and yet the governments there keep accepting ESAF loans and programs. It is true that the IMF has no legal power to force governments to adopt specific policies. But it has something far more persuasive than international law: it has money. The severely indebted, impoverished countries of Africa, Latin America, Asia, and the Caribbean find themselves in a position where they can get credit from no other source. The IMF will lend desperate governments money, but only in exchange for their commitment to the standard recipes of ESAF's structural adjustment policies. And if a country does not maintain its policies to the approval of the IMF, the IMF's reports will mean that the government will be effectively barred from getting credit from any other source.

The adjustments recommended are nearly identical in every case: emphasize export production over food security, lay off public sector employees, slash public spending (such as health and education), raise taxes, raise interest rates, open up economies to foreign corporations, end subsidies on food, fuel and other basic necessities, and end support of local manufacturers. After the standard three-year ESAF program, however, the money has been spent on immediate needs, policies have been changed, and the net result is lower standards of living, increased debt burdens, higher poverty rates, and economies less and less able to provide for people or set a course for self-sufficiency. That's why so many countries have signed up for multiple ESAF programs: the goals haven't been achieved, external debt has grown, yet the only source of desperately-needed capital is the same institution, the IMF, which designed the dubious policies in the first place, and insists on more of the same poisoned medicine in exchange for new funds.

The IMF says that its ESAF program is inextricably bound up with any moves it will make to provide debt relief to what it calls "heavily indebted poor countries" or HIPCs. Despite the absence of rational justification for linking debt relief to its ESAF program, the IMF, after resisting any participation in the World Bank-designed HIPC debt relief initiative for months, compromised: it would participate on the condition that the ESAF program was first fully-funded. This was quite plainly holding debt relief hostage to ESAF funding, but in the face of the IMF's intransigence, and the fact that multilateral debt cannot be addressed without the IMF, the condition was accepted.

As it turns out, the HIPC Initiative has proven to be a failure. The Associated Press reported on Friday that an internal report, discussed by both the IMF and World Bank boards, found that HIPC "may not reduce amounts these nations already pay to keep up their accounts " and that "borrowing countries, international organizations, churches and charities are disappointed with the depth of debt relief as well as its slowness in coming." Indeed, Burkina Faso and Mali will probably be expected to pay more as a result of participating in HIPC. In fact, given that a country's qualification for HIPC benefits is conditioned on its abiding by ESAF programs, the 50 Years Is Enough Network feels that the HIPC Debt Relief Initiative is mis-named; it is, in fact, an instrument for enticing desperately poor countries, which have few other incentives to impose still more austerity on their populations, to adhere closely to the demands of ESAF structural adjustment programs. If they can do so, they will finally get some of their monumental debt canceled. It's a powerful lure, since indebted countries have long been laboring under debt burdens that go beyond any reasonable standard of bankruptcy, and since no one acquainted with the debt's magnitude and the economies of the countries involved believes that the debts can ever be paid off. But in light of the experience of the first graduate of the HIPC program, Uganda -- which just one year after its graduation now finds itself where it started, with officially unsustainable debt once again -- and of Mozambique, the poorest country in the world and one which is scheduled to graduate from HIPC soon with almost no net reduction in its debt payments, and then only if it submits to the IMF demand under ESAF that it quintuple user fees at its public health clinics -- HIPC is simply another example of IMF blackmail.

The insistence that proceeds from sales of its gold be devoted first to ESAF before the remainder can be devoted to debt relief programs is in line with standard IMF practice. There is no reason to do this: ESAF has nothing to do with debt relief. A forthcoming study in fact finds a direct correlation between the amount of time spent under structural adjustment and increased external debt. IMF gold should be sold, and the proceeds should go directly to immediate debt relief that is in not linked to IMF conditions -- let us think and act outside the IMF designed box.

When your debt increases even though you're paying more than you borrow, you know there is a problem. According to just-released statistics from the World Bank, African debt went up 3% from 1997 to 1998, despite the region having paid $3.5 billion more than it borrowed in 1998. The same statistics show that for 1997-1998, Africa made a net transfer of over $1 billion to the IMF. This institution is doing Africa no favors -- just giving disastrous advice, then charging us for the trouble. Without at this point going into great detail on the case for debt cancellation, let me just say that only the annulment of Africa's crushing debt -- without links to IMF programs or economic conditions like those imposed by it and the World Bank -- can set the stage for true recovery.

The news I bring you about the IMF will come as little surprise, perhaps, if you think back to the reputation the IMF gained in its handling of the financial crisis in East Asia. Not only did it fail to predict or prevent the collapse of three major economies -- Thailand, Indonesia, and South Korea -- and assemble bailout packages costing nearly $150 billion, but it came under intense criticism for the recessionary policies it imposed in exchange for those bailout funds. The layoffs, continuing unemployment, hunger, and dramatically increased levels of poverty may not be making headlines in the U.S. anymore, and financial markets may have recovered, but the real economy in these countries remains depressed, and the human suffering continues. Those of us who come from countries that have suffered under structural adjustment programs empathize with the people of East Asia, for we can see that the IMF -- never known for adapting its recommendations to unique circumstances -- has in those countries enforced similar policies of layoffs; increased interest rates; reduction of credit to medium and small enterprises; shifting of social burdens to women; and huge cuts in spending on health, education, and other social needs. The only difference for those of us from Africa, or Latin America, or South Asia, is that we've been enduring the IMF's sadistic policies for many years, and we have rarely seen the IMF criticized for its practices in the world's centers of power.

ESAF programs are supposed to last three years, but, as the internal review showed, fully 75% of countries using them go "off-track" at some point, so it actually takes longer. My home country, Kenya, started an ESAF program in May 1989 and did not complete its three-year commitment until December 1994, five and half years later. The IMF will say that this happens because governments are insufficiently diligent in enforcing tough rules. As legislators in a democracy, however, I'm sure you'll appreciate the difficulty of imposing a perpetual series of austerity measures on already-impoverished people. The IMF, claiming there is no relationship between economics and politics, does not care to consider such realities. This aspect of ESAF programs -- that they take longer than three years -- is important in terms of the HIPC initiative also, for suggested reforms to it would reduce the number of years countries spend under structural adjustment. What such reforms -- such as those suggested by the "Debt Relief for Poverty Reduction Act" HR 1095 and President Clinton's debt relief proposal -- fail to take into account is that the IMF can, and usually does, expand the amount of time that "three years" takes.

When we have complained about the perpetual austerity programs, the endless treadmill of adjustment and debt, we in Africa have often been told that our governments and our people don't have the economic sophistication to design sound policies. The results of ESAF make me wonder if the economists at the IMF do. I myself don't claim to have all the answers, and I'm not an economist. But in the economics courses I took, I did grasp one idea -- the law of supply and demand. My experience with structural adjustment, however, makes me wonder if the IMF and World Bank really understand it. One of the central, unchanging strategies of ESAF programs is an orientation to export production. If we can sell goods to richer countries, we can earn hard currency to make debt payments, buy foreign goods, and perhaps develop our own economies. So our young people work unskilled jobs for low wages in assembly factories and our best land is used not to grow food for ourselves but cash crops like cotton, coffee, tobacco, and flowers. We end up buying food that we used to grow. But when we go to sell our goods on the world market, we find that for commodity after commodity, prices are at all-time lows. It doesn't take too much research or thought to discover that with most of the countries of Africa, Latin America, and Asia taking IMF advice, everyone is producing the same goods. So the market is glutted, and the price drops. It shouldn't be a surprise, and yet so many governments the IMF is advising have ended up having to take loans to provide food for people who used to grow their own. Economics does indeed seem an odd science sometimes. Odder still, the experts at the IMF seem unaware that the law of comparative advantage is trumped by the law of supply and demand.

My grandmother -- my mother's mother -- lost her husband relatively early in life. She was left to raise 10 children. She did so, however, with the money she made by growing coffee. That was before structural adjustment re-oriented the economies of the Southern countries, however. My grandmother still has the same number of coffee trees on her farm, and all her children have grown up and left home. The production hasn't fallen, the price has plummeted. To support herself, my grandmother now depends heavily on resources from her children. Our world has been re-made by outside forces, and even when we follow the experts' advice, we end up losing ground.

The last time I was home it was a season of drought in Kenya. Famine hit the eastern part of the country, it was reported that old people and children were starving to death. In the same edition of the newspaper that carried the news of those deaths, I was saddened a second time to read that tons of cotton were rotting in storage in western Kenya due to lack of transportation. I was devastated by the irony of a nation that could not feed its most vulnerable, but was raising non-food cash crops in order to earn foreign currency to service its debt -- and even then couldn't maintain its transportation systems to get that cash.

Perhaps the answer is not as easy as western Kenya growing maize, millet, beans, and cassava so that people in eastern Kenya never starve to death. But perhaps it should be that easy. We know that structural adjustment programs have not worked in 18 years for over 80 countries, since poverty just continues to increase. And we know that the debt burden continues to crush the hopes and dreams of entire generations. We know that the more countries pay, the more they seem to owe. The unnecessary ironies like the one I found in that newspaper, these tragic ironies, are a result of debts that have grown while the programs meant to remedy them have thrown countries deeper into debt, exposing them to more pressure to adopt the same sorts of policies and so acquire more debt. It is the impoverished people in the world's most impoverished continent who are paying the price, life by life and generation by generation.

You have the power we in Africa don't -- to make the officials of the international financial institutions, and of your own Treasury Department, which has been central in designing these programs, explain why they insist on doing this to Africa. Indeed, in the face of all of the evidence of ESAF's tragic failure, why is the IMF so committed to it -- so committed that it will condition its cooperation in other areas on having it fully funded? It can't be the amounts contained in the debt payments themselves, for it's obvious the debts can't be paid -- plus the amounts are not large at all in terms of the global economy. So why not cancel them and end the cycle of reschedulings and new programs and defending the programs in international forums? The only answer, I'm afraid, is that the IMF -- and its close colleagues at the World Bank and the Treasury Department -- want to maintain leverage over the economic policies of Africa and other impoverished regions. Please ask these officials what is being gained with that leverage? And is it worth the continued buildup of debt, the growing poverty levels, the increased burdens on African women, the millions of children who die each year before age five from malnutrition and starvation and from preventable and curable diseases, the cuts in wages for those not laid off, the suffering that afflicts the African continent and its peoples and leads, quite arguably, to the civil wars that keep plaguing the region?

Posing these questions will advance not only the cause of equitable development in Africa and other impoverished regions, but also the call for a sound assessment of the largely-unexamined policies guiding the global economy.