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Date: Tue, 4 Nov 2003 18:08:28 -0600
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Subject: Senegal: Debt and Destruction


AfricaFocus Bulletin
November 4, 2003 (031104)

Senegal: Debt and Destruction
(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 [log in to unmask]
World Development Movement
25 Beehive Place, London SW9 7QR, UK
+44 (0)20 7737 6215 http://www.wdm.org.uk [log in to unmask]

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.

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