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James Waters James Waters is a research fellow at the Westminster Business School, University of Westminster. His studies are on business and development issues, with a specialisation in the economies of Sub-Saharan Africa, particularly the Great Lakes region. Why the IMF is not capitalist enough in Burundi
First presented at the Students for Development forum, Oxford University, 2004 1. The legacy of Burundi's past and the burden of Burundi's present Burundi is a small, low-income state located at the geographic heart of Africa. It imports its petroleum and other goods principally through the port of Mombasa in Kenya, which means that they have to pass through Kenya, Uganda, and Rwanda before they arrive in Burundi. Other sea access routes have been blocked by the civil wars in Burundi and its Western neighbour the Democratic Republic of Congo. The war in Congo has resulted in troops often entering Burundian soil, and vice versa. Refugees from Burundi's civil war have poured over the border into Tanzania, and numbered 470,000 in 1999 (International Crisis Group, 1999), although many have now returned following the recent peace deal between the Government and main rebel group CNDD-FDD. Burundi's international relations are extensive and intensive. It has the familiar array of multilateral organisation memberships: the Common Market of Eastern and Southern Africa, the IMF, the World Trade Organisation, and the World Bank, to name a few. The European Union's Everything But Arms agreement allows Burundi to export most goods to the EU tariff free, but exports remain dominated by a single crop, coffee. It is tempting to believe that Burundi could adopt a more active trading position, diversifying to other crops and manufactures, but in practise this has not occurred to any great extent. Coffee production has shown almost no reaction to changes in world prices over the last decade (Riechel et al (1997); Lopes et al (2002)). It is constrained by the inability of agricultural capital to redeploy rapidly, a phenomenon observed from an economic structuralist viewpoint in Prebisch (1988). Furthermore, geographic conditions mean that crop viability in particular districts is constrained by soil types, climatic conditions, and the demands of a densely packed population. The relationship coffee producers have with the world market may only loosely be described as market capitalism; there is little freedom for producers in setting prices, conditions, or even choosing to participate or not. Burundi has made some efforts to diversify its production away from coffee. One recent initiative was to attempt production of essential fruit oils over 1,500 hectares in the North West of the country (quoted on the national press agency, Burundi Quotidien (2002)). Notwithstanding that the area is a potential battleground between the Rwandan army and Interahamwe militia from the Congo, the idea is a strong one. Horticultural markets in Europe have been sufficiently profitable to attract producers from all over East Africa, and any attempt to break free of the stranglehold of the coffee market has to begin somewhere. However, such schemes will, in the immediate future, make only a small dent in the export dependence on coffee. The exports are required to service a foreign debt of 182% of GDP in 2001. Coffee has hardly met this objective, but continued output is required in order to gain the approval of foreign donors, who shore up the economy and Government revenue. The donors also provide technical assistance to the country, through the IMF staff who help with analysis for Government policies. Any policies that the IMF does not like, it can refuse to fund, although there is the issue of fungibility which would prevent precise hypothecation. The Western donors have perhaps more leverage over Burundi than any other country in the world. The policies which the Government has proposed for its economic plans are common to many IMF or World Bank sponsored programs. The central objectives are to create the best conditions for the effective use of external assistance and lay the groundwork for sustainable growth and poverty reduction. The means for achieving this are fiscal consolidation, a restrictive monetary policy, improved governance, and structural reform (Government of Burundi, 2001). Fiscal consolidation is a desirable aim, in view of the collapse of the revenue base which occurred during the years of civil war between 1993 and 1997, when revenues declined from 16.9% of GDP to 10.6% of GDP. However, the Government deficit as a percentage of GDP did not show any trend towards widening, as expenditure was trimmed too. Further, since 1997 revenue has grown as a percentage of GDP so that in 2000 and 2001 it exceeded its pre-war 1992 value. The importance of these figures is to indicate that consolidation, whilst evidently advantageous for the government’s financial health and spending priorities, will not mark a radical departure from historical precedent. It could be argued that a restrictive monetary policy is not a major change from past practise. The GDP deflator was 6.0% in 1992, rising to 22.5% by 1995, declining to 11.4% in 1998, before declining again to 5.4% in 2001. At no point was hyperinflation threatened. The policy of monetary restraint amounts to a slight shift in the existing direction of the economy, and nothing more. Strengthening governance, particularly its financial aspects, has potentially far wider effects on the economy. One can observe the effects of misappropriation of government funds in order to support private military initiative against ethnic groups; they have resulted in three decades of civil war. Ngaruko and Nkurunziza (2000) go further, presenting the predatory nature of the bureaucracy as being the primary cause of the civil wars, a cause which extends to the theft of public assets for pure self-interest and not just the financing of ethnic militia. Well-targeted structural reforms would be a substantial improvement for the sectors of the economy most affected by government regulation, particularly coffee marketing. An IMF staff team has described, with justification, the current system of fixed producer prices as entailing important disadvantages: it reduces farmer incentives, makes government revenues volatile, and adversely affects exchange rates (Riechel et al, 1997). The IMF has estimated that 50% of smallholders produce some coffee, although the value of these crops is far below the worth of food crops it has risen to around 13% of food crop value since liberalisation started in 1997. With coffee prices as low as they are currently, it is questionable whether any domestic reform to the coffee sector can bring it into profitability. The current policy proposals are not going to enact a revolution in the economy. An impartial observer might conclude that the major problem for the economy is the periodic outbreak of a civil war which borders on genocide (Lemarchand, 1996). Ngaruko and Nkurunziza (2000) characterise the outbreaks as a continuous war for the last forty years. For the majority of the population, recent economic history is described as subsistence farming, interspersed with huge displacements due to conflict. An effort to address the most pressing developmental needs of the economy would treat these issues as having paramount importance. They are outside of the IMF's conventional brief of alleviating temporary balance of payments deficits, of course. 2. Visions of Burundi’s future The Government's proposed policies would at best provide a supportive environment for the development of business, and one in which the Government plays little direct role outside of the social sector. Economic reinclusion of former combatants is part of the plan, and will be effected with donor support. The number of former combatants who would have to be reintegrated is quite small – the author's quick estimate based on current Government budgeting is around 35,000, in total for the army and rebels. The behaviour of this demobilised force will be critical to the future of the country. It is far from certain whether the payment of comparatively small transition funds can adequately meet their concerns. The grievances of the main rebel group CNDD-FDD centre on the massacres and human rights abuses perpetrated by the ethnic Tutsi rulers of Burundi on the ethnic Hutu majority (CNDD-FDD, 2004). They date back for decades, a theme which runs through the work of commentators like Lemarchand (1996) and Ngaruko and Nkurunziza (2000). It is difficult to see how a set of policies substantially restoring the economy to its pre-war status could protect against future outbreaks of violence. The question arises as to whether institutional reforms are sufficient to correct for the vulnerabilities in the economy. The weaknesses which leave an economy vulnerable to civil war were identified by Collier and Hoeffler. These are "heavy dependency on primary commodity exports, high inequalities in income distribution, high poverty and illiteracy rates among young men, and overall economic decline" (Ngaruko and Nkurunziza (2000), citing Collier and Hoeffler (1998)). The proposed governmental policies may result in an improving economic situation in the short term, although it is hard to see where rapid, sustained economic growth or non-commodity exports could come from. The large majority of the population are subsistence farmers, and the urban workforce is tiny. There will be no industrial revolution in Burundi. Poverty and illiteracy may fall, but only in the very long-term. Some of Burundi's problems, like conflict in surrounding states, can be changed little by domestic economic policy. Rather the emphasis is shifted to altering the conditions under which the problems tend to constrain Burundi's economy. Rapid endogenous growth is one possibility, but this is a goal which African non-oil producers have not yet obtained. More reasonable is to remove the susceptibility of the population to the problems, by making the decline in the international coffee price less important, by ensuring a very dense population competes less for the same supply of domestically produced food and land, and by providing bridging social links between people which transcend ethnicity. Urban industrialisation, in particular a form of capitalism creating class consciousness, presents a means of achieving these goals, although Burundi's status quo is far from this objective, with one of the lowest percentage of town dwellers in the world, apparently closed social hierarchies in the countryside (International Crisis Group, 1999), a low level of savings, and a high level of subsistence farming. The possibility of a transition to a stable course of urban industrialisation consequently appears negligible, unless some form of necessity compels the industrialisation, whether by regulation or by force. It seems unlikely that the Burundian Government would be willing to countenance a colonial style head tax at a sufficiently punitive level, especially in the absence of existing demand for urban wage labour. Nor would state-capitalist industrialisation with forced labour be a workable, affordable, or tolerable approach. However, there have been other circumstances which have presented the opportunity for such development. The civil war has resulted in large-scale internal displacement of the population, and long-term refugee camps with 470,000 people on the borders with Tanzania. In these camps, whilst social patterns can become reset along the same lines as in the Burundian countryside, there is the chance of social reorganisation by simple restructuring of the geography of the camps. For example, the UNHCR did not group refugees in camps according to their original district in order to avoid the possibility of military command structures being reinstated, as had happened in the camps of Eastern Zaire following the flight of Hutus after the Rwandan war of 1994 (International Crisis Group, 1999). The same source reports that camp leaders tend to be middle-aged men, and to some degree major social orders will persist in the camps; more work is required to determine the extent of malleability of structures within them. The form of social reorganisation which is intended here is the encouragement to entrepreneurial development, non-agricultural production, capital accumulation, and wage labour. The seeds of such an attitude are already present in stories of the young refugees who leave the camps, illegally, to work in the Tanzanian capital Dar es Salaam, and in the presence of accumulating classes. At present, the camps reportedly provide few opportunities for the ambitious (International Crisis Group (1999); Sommers (2001)). The promotion of compatible social structures and attitudes is only part of the required conditions for urban capitalist development. An adequate business and legal framework is another requirement. The refugees are already subject to stringent rules imposed by the UNHCR and Tanzanian Ministry of Home Affairs, mostly relating to security and freedom of movement and association (International Crisis Group, 1999). The imposition of appropriate business laws should not be difficult, if sufficient funding is made available for drawing up legislation and policing it in the refugee city-states. International Crisis Group (1999) has said that donors have not been generous in funding the refugee camps. In this matter, the IMF has the opportunity to use its conditionality and country assessments to support such a scheme, and so encourage donors to view the project as an investment, not a grant. The successful promotion of an entrepreneurial approach will also require support services like enterprise finance. The education of refugee populations should be given a high priority. In the absence of a commitment to universal education throughout the region, it should be considered for higher funding per student than the regional average. The proposal here is not to make the refugee camps more pleasant, although it may have that effect. Rather, it is to establish a seedbed for capitalist development to be carried back and grow in Burundi. It should be seen as an integral part of Burundi's development, and as such it cannot be viewed as a cheap option, which is another reason why IMF involvement is desirable. There are large potential risks if the proposals are implemented without adequate funding. The failures of regroupment camps in Burundi have been well-documented (Human Rights Watch, 2000), and have led to accusations that they are concentration camps. Requiring underpaid Burundian or Tanzanian police to implement business law would seem to be susceptible to the similar difficulties. Tanzania should be encouraged to see the camps as a benefit, not a problem, in order that local trade can be facilitated, subject to adequate security measures being in place. The refugees should themselves be encouraged to view the Tanzanian camp as a home, if temporary, in which business development is possible, rather than as a waiting room for return to Burundi. It is inevitable that the usual African predominance of service industries will occur, rather than manufacturing, but some moveable capital formation will also occur, and the structures of capitalism reinforced. The majority of Burundian refugees have now returned to their homeland following the peace deal between the Government and CNDD-FDD, so the immediate opportunity for implementation of the plans has passed. Unfortunately, the unresolved tensions in and around Burundi make future refugee flight all too possible. Less negatively, and hopefully as a way of avoiding the camps at all, the proposals may be put into effect among the refugee and internally displaced population who choose not to return to their original communes, or to those people left homeless in the capital Bujumbura, or over the medium term, to AIDS orphans. Conclusion Burundi's insertion in the international economy is one characterised by dependency, and it has little opportunity to take advantage of the celebrated benefits of globalisation. In the international marketplace of economic advice, it is a policy taker, as it has no real choice to oppose the wishes of international donors. This puts extra importance on the advice of the IMF, the principal counsel to the Government. The present policies support the development of a properly functioning market, and improved government operation. However, they leave the country with little prospect of rapid economic development or a solution to its social problems. An alternative policy would be to promote capitalist development in the country, notably in the long-term refugee camps which have been present throughout Burundi's post-colonial history, which would then act to seed further growth throughout the country. Aside from its purely economic advantages, capitalism presents a means of social organisation possibly capable of challenging the structures which have proved so damaging to Burundi in the past. To appreciate its full benefits would require recognition of the social class formation which it brings, and recognition that merely encouraging perfectly functioning markets does not bring all of its merits. The IMF should be a more enthusiastic advocate of capitalism. References Burundi Quotidien (2002). Online article. Bujumbura: Burundi Quotidien. Retrieved circa August 2002 from the World Wide Web http://www.burundi-quotidien.com/economie1.html CNDD-FDD (2004). La nature du conflit burundais: cocktail politique d’intolérance et d’hypocrisie. Bujumbura: CNDD-FDD. Retrieved 16 June 2004 from the World Wide Web http://www.burundi-sites.com/nature.htm Collier, P., Hoeffler, A. (1998). On the Economic Causes of Civil Wars. Oxford Economic Papers. No. 50, pp563-73
Government of Burundi (2001). Letter of Intent. Bujumbura: Ministry of Finance. Retrieved 23 October 2003 from the World Wide Web http://www.imf.org/external/np/loi/2001/bdi/01/index.htm Human Rights Watch (2000). Burundi: Emptying the Hills: Regroupment in Burundi. New York: Human Rights Watch.
International Crisis Group (1999). Burundian Refugees in Tanzania: The Key Factor to the Burundi Peace Process. ICG Central Africa Report N° 12. Nairobi: International Crisis Group Lemarchand, R. (1996). Burundi: Ethnic Conflict and Genocide. Cambridge: Cambridge University Press
Lopes, P.S., Zoromé, A., Hallaert, J.J. (2002). Burundi: Statistical Annex. Washington D.C.: IMF. IMF Staff Country Report 02/241 Ngaruko, F., Nkurunziza, J.D. (2000). An Economic Interpretation of Conflict in Burundi. Journal of African Economies Vol. 9, no. 3, pp. 370-409 Prebisch, R. (1988). Dependence, development, and interdependence. In: Ranis, G. and Schultz, T.P. eds. The State of Development Economics: Progress and Perspectives. Basil Blackwell, New York, 1988 Riechel, K., Krichene, N., Farah, A. (1997). Burundi – Recent Economic Developments. Washington D.C.: IMF. IMF Staff Country Report 97/114 Sommers, M. (2001). Fear in Bongoland. Oxford: Berghahn Books |
