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Madagascar Structural Adjustment
The structural adjustment requirements of the World
Bank and
the IMF were and remain critical to understanding the
liberalization policies of the Ratsiraka and Zafy regimes.
In
1980 severe balance of payments deficits led the Ratsiraka
regime
to seek the first of ten IMF standby and related
agreements to be
signed during the 1980s. The last series of agreements of
the
decade included one in 1988 using IMF trust funds and one
in 1989
that expired in 1992. Throughout the 1980s, Madagascar
also drew
four times on the IMF and received four adjustment loans
from the
World Bank for industrial rehabilitation (1985--US$60
million),
agricultural reform (1986--US$60 million), trade and
industry
adjustment (1987--US$100 million), and public sector
reform
(1988--US$127 million).
The granting of these standby and related agreements
was
linked to a coordinated set of structural adjustment
requirements
designed to foster the liberal, export-oriented economy
favored
by the IMF and the World Bank. For example, an IMF standby
agreement signed on July 9, 1982 to cover the 1982-83
period
released 51 million in special drawing rights
(SDRs--see Glossary)
only after the Ratsiraka regime agreed to reduce
both
the current account deficit and the budget deficit,
devalue the
Malagasy franc
(FMG--for value, see Glossary),
limit
domestic
credit expansion, avoid any new short- or medium-term
foreign
borrowing, and limit public sector salary increases. Among
the
major measures required by later agreements were a ceiling
on
rice imports, increases in producer prices of rice and
coffee,
and a further devaluation of the Malagasy franc. Despite a
reputation for reneging on commitments to reform, formerly
Marxist Ratsiraka ironically became known as one of the
IMF's
"star pupils" in Africa.
According to its agreement with the IMF, Madagascar was
required to limit its deficit to 5 percent of GDP for the
period
from 1989 to 1992. It succeeded in doing so until 1991
when
production dropped, inflation increased, and tax income
decreased
because of political disturbances. Since then the
government has
not acted on the increased budget deficit, which was
scheduled to
be 6.2 percent of GDP in 1994, causing dissatisfaction on
the
part of World Bank officials.
Economic reform was stalled by the economic and
political
turmoil associated with the downfall of Ratsiraka and his
replacement by the popularly elected Zafy regime in 1992.
Although publicly critical of the IMF and World Bank
during the
1993 election campaign, Zafy, who is a strong proponent of
a
liberal, free-market economy, initiated negotiations with
these
financial institutions to resume Madagascar's structural
adjustment programs (and thereby gain access to more than
US$1
billion in blocked development funds). However,
negotiations
throughout the first half of 1994 were tense as Zafy
sought to
avoid conditions that, no matter how logical from the
macroeconomic perspective of long-term reform and
development,
would constitute political suicide. General principles of
reform
that the World Bank considered necessary included
macroeconomic
stability, which implied moderate rates of inflation and
of
exchange; foreign trade and financial policy modifications
that
allowed the convertibility of the current account and
liberalized
import regulations; and the elimination of barriers to
economic
activity, such as eliminating obstacles to foreign
investment and
to participation in the export processing zones (EPZs).
The World
Bank's reform principles also involved encouraging the
private
sector by privatizing the parastatals, as well as
concentrating
government investment on infrastructure programs and the
development of human resources by improving education,
including
technical education, and health facilities, including
family
planning to limit population growth. Among the specific
reforms
demanded by the World Bank were the revision of the 1994
budget,
a new timetable for proposed privatization of parastatals,
further reforms of the public sector, and the
restructuring of
terms for marketing agricultural products, most notably
vanilla.
The IMF echoed these demands and added several more.
These
included allowing the Malagasy franc to float freely on
the
international currency market, restructuring the National
Bank
for Rural Development, privatizing the National Bank for
Trade
Development, and forcing all banks to maintain reserves of
10
percent of all deposits. To avoid pressures from the World
Bank,
the government sought funds from other sources.
Considerable
furor developed in the spring of 1994, when it became
known that
without the knowledge of the minister of finance, who was
supposed to authorize such transactions, or the prime
minister,
but with the agreement of president Zafy and the president
of the
National Assembly, Richard Andriamanjato, the governor of
the
Central Bank of the Malagasy Republic, Raoul Ravelomanana,
had
signed promissory notes to several European banks
committing
Madagascar to repay loans of US$2 million. In short, the
Zafy
regime must balance the need for international funds (and
the
conditions that accompany their disbursement) with the
need to
maintain popular support if Zafy intends to seek a second
term in
office.
Data as of August 1994
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