Somalia FROM SCIENTIFIC SOCIALISM TO "IMF-ISM," 1981-90
Two stages of hut building: men construct the pole
framework and women do the thatching
Courtesy Hiram A. Ruiz
Its socialist program in disarray and its alliance with the
Soviet Union lost in the wake of the 1977-78 Ogaden War, Somalia
once again turned to the West
(see
Relations with the United States;
Other Foreign Relations
, ch. 4;
Foreign Military Assistance
, ch. 5). Like most countries devastated by debt in the
late 1970s, Somalia could rely only on the nostrums of the IMF
and its program of structural adjustment.
In February 1980, a standby macroeconomic policy agreement
with the IMF was signed, but not implemented. The standby
agreements of July 1981 and July 1982 were completed in July 1982
and January 1984, respectively. To meet IMF standards, the
government terminated its policy of acting as the last-resort
employer of all secondary school graduates and abolished its
monopoly on grain marketing. The government then prepared a
medium-term recovery program consisting of a public investment
program for 1984-86 and a phased program of policy reforms.
Because the International Development Association (IDA)
(see
World Bank--Glossary)
considered this program too ambitious, the government
scaled down its projects, most notably the construction
of the Baardheere Dam, which AID had advised against.
The government abandoned its first reform program in
1984. In March 1984, the government signed a letter of intent
accepting the terms of a new US$183 million IMF extended credit
facility to run for three years. In a Somali Council of Ministers
meeting in April, however, this agreement was canceled by one
vote, as the soldier-ministers chafed at the proposed 60 percent
cut in the military budget. The agreement also called for a
further devaluation of the shilling and reductions in government
personnel.
A new crisis hit Somalia in June 1983. The Saudi Arabian
government decided to stop importing Somali cattle, and this ban
soon was expanded to include sheep and goats. Saudi officials
claimed that rinderpest had been detected in Somali livestock,
making them unsafe. Cynics pointed out that Saudi businessmen
recently had invested in Australian ranches and were seeking to
carve out an export market for their product. In any event, the
ban created a large budget deficit, and arrears on debt service
started to accumulate. A major obstacle to expanding livestock
and other exports was Somalia's lack of communications
infrastructure: good roads and shipping facilities as well as
effective telecommunications and postal services. Lack of banking
facilities also posed a problem. Somalia could not easily avoid
the medicine of structural adjustment.
In March 1985, in negotiations with the Paris Club (the
informal name for a consortium of eighteen Western creditor
countries), Somalia's debt service schedule was restructured, and
the government adopted a reform program that included a
devaluation and the establishment of a free market for foreign
exchange for most private transactions (see
table 3, Appendix).
In November 1985, in conjunction with the Consultative Group of
Aid Donors, a technical body of the Paris Club, the government
presented its National Development Strategy and Programme with a
revised three-year investment program. Western aid officials
criticized this program as too ambitious. In June 1986, the
government negotiated an agricultural sector adjustment program
with IDA. In September 1986, a foreign exchange auction system
was initiated, but its operation encountered severe difficulties
because to its complete dependence on external aid. Many exchange
rates applicable to different types of transactions consequently
came into existence.
AID prepared a second-stage project report in 1986 that
renewed the call for privatization. It praised the government for
permitting the free importation of petroleum products, but chided
the Somalis for not yet allowing the free marketing of hides and
skins. AID put great pressure on the government, especially by
means of lobbyists, to take action on legislation to permit
private banking. To encourage the private sector further, AID was
prepared to fund the Somali Chamber of Commerce if the Somali
government would allow it to become an independent body. The 1986
report went beyond privatization by calling for means of
improving the government's revenue collection and budgetary
control systems. Building a government capable of collecting
taxes, making policy reforms, and addressing fiscal problems
became the new focus. Along these lines, AID encouraged the
elimination of civil service jobs. As of in 1985, although 5,000
civil servants had been dismissed AID felt that 80 percent of the
civil service was still redundant. AID officials, however, urged
pay raises for those in useful jobs.
Somalia's Five-Year Plan for 1987-91 largely reflected the
international pressures and incentives of the IMF and AID.
Privatization was written into the plan, as were development
projects that were smaller in scale and more easily implemented.
By 1988 the government had announced implementation of many IMFand AID-encouraged structural adjustment policies. In regard to
foreign exchange, the government had taken many intermediate
steps that would lead to the merger of the pegged and market
rates. As for banking, legislation had been enacted allowing
private banks to operate. In public finance, the government had
reduced its deficit from 10 to 7 percent of GDP, as had been
advised, but acknowledged that the increased taxes on fuel, rent,
and sales had been only partially implemented. A value-added tax
on fuel imports remained under consideration, but the tax on
rental income had been increased and the sales tax raised from 5
to 10 percent. The government continued to procrastinate
concerning public enterprises, holding only informal discussion
of plans to liquidate unprofitable enterprises.
The IMF corrected some of the worst abuses of the socialist
experiment. With the devaluation of the shilling, the real cost
of foreign grain became apparent to consumers, and the relative
price of domestic grain rose. Rectifying prices induced a 13.5
percent increase in agricultural output between 1983 and 1985.
Inflation was tamed as well, falling from an annual rate of 59
percent in 1980 to 36 percent in 1986. World Bank officials used
these data to publicize the Somali success in structural
adjustment.
The overall picture was not that encouraging, however.
Manufacturing output declined, registering a drop of 0.5 percent
per annum from 1980 to 1987. Exports decreased by 16.3 percent
per annum from 1979 to 1986. Moreover, the 0.8 percent rise in
GDP per annum from 1979 to 1986 did not keep up with population
growth. World Bank estimates put Somalia's 1989 (gross national
product
GNP--see Glossary)
at US$1,035 million, or US$170 per
person, and further estimated that between 1980 and 1989 real GNP
per person had declined at 1.7 percent per year.
In the period from 1987 to 1989, the economic results of
agricultural production were mixed. Although corn, sorghum, and
sugarcane were principal crops, livestock and bananas remained
major exports (see
table 4, Appendix;
Foreign Trade, this ch.).
The value of livestock and banana exports in 1989 (the latest
year for which data were available in May 1992) was US$26 million
and US$25 million, respectively. Livestock, consisting primarily
of camels, cattle, goats, and sheep, served several purposes. The
animals provided milk and meat for domestic consumption, and
livestock, hides, and skins for export (see
table 5;
table 6;
Appendix).
As a result of the civil war in many areas, the economy
deteriorated rapidly in 1989 and 1990. Previously, livestock
exports from northern Somalia represented nearly 80 percent of
foreign currency earned, but these exports came to a virtual halt
in 1989. Shortages of most commodities, including food, fuel,
medicines, and water, occurred virtually countrywide. Following
the fall of the Siad Barre regime in late January 1991, the
situation failed to improve because clan warfare intensified.
Statistical data were minimal, however, for the period from 1990
onward.
|