World Bank Plan Led To Government's Collapse

by Gumisai Mutume

Despite widespread discontent with the World Bank's plan of structural reforms, the government of the southeast European country of Moldova stuck to the austere conditions set down in order to secure a $40 million loan, an official document leaked from that institution shows.

The loan was released in two tranches, the last in December.

Under the loan terms, the World Bank ordered Moldova to privatize farms and the energy sector, cut subsidies and other social assistance programs, privatize wineries and tobacco companies and ready the telecommunications company for privatization.

"In a number of areas, implementation of the program has advanced significantly beyond the originally agreed targets," noted the confidential tranche release document for Moldova.

But the unpopular reforms spelled the end for a succession of governments starting with a three-party coalition known as the Alliance for Democracy and Reform.

With the resignation of Prime Minister Ion Ciubic in January 1999, a period of political upheaval was set off.

A new government led by Ion Sturza was voted in by parliament, by the narrowist of margins -- just one vote. It soldiered on with even deeper reforms.

But popular opinion hardened against the changes, especially once the government began taking significant steps to liberalise the energy sector. And at the point when it needed to push through the privatisation of state-owned winery and tobacco companies, eliminate energy and transport subsidies and pass the 2000 budget, Sturza's government fell.

A new government led by Prime Minister Dumitru Braghis took over where Sturza left off. It too found the going tough and had to resort to significant amendments to the Constitution in July that year which gave the prime minister more authority.

The Bank document outlines government timelines, marking out areas where significant progress has been made and, like the proverbial schoolmaster, patting the state on the back when it complies.

The areas of focus include agricultural land privatization, removal of transportation subsidies and efforts to sell the telecommunications company to foreign investors. In one instance, the government closed 63 village hospitals to meet targets in reducing its energy bills.

Under the direction of the Washington-based Bank, nearly 1,000 state and collective farms have been privatized and 800 liquidated. The government also agreed to abstain from interfering in the grain market and discontinued direct credits and subsidies to the agricultural sector.

Many of Moldova's 4.3 million people depend on the land. With per capita income averaging $370 in 1999, half the population of Moldova, one of the poorest countries in Europe, live on less than a dollar a day.

Moldova became independent in 1991 and joined the World Bank the following year. It introduced a new currency in 1993, but between then and 1996 the country's economy did not grow. In 1996, it actually shrunk by 7.5 percent.

Nancy Alexander of the non-governmental Globalization Challenge Initiative says Moldova's tranche release report is "a fairly typical document," especially for countries that are heavily indebted.

"It is profound and fairly sweeping...going for the transfer of ownership of all major public assets such as farms, land, electricity, gas and telecommunications companies," she says.

So why do governments do it?

"What happens is the ability of the international financial institutions to starve these countries of resources, not only IMF and World Bank loans but also of private capital by letting out the word that the country is not a good adjuster," says Doug Hellinger of the Development Group on Alternative Policies.

"Initially a number of countries resist, and then along the way governments are put under so much pressure they give in."

Such protests have accompanied efforts at economic reforms in the South American nation. In January last year, they claimed another victim -- President Jamil Mahuad, who was forced out of office.

Vice President Gustavo Noboa, who assumed power after Mahuad's departure with backing from the armed forces, has continued the unpopular reforms. He too has encountered a series of stand-offs with indigenous communities protesting massive price increases sanctioned by Washington.

The case of Mozambique shows how the international financial institutions (IFIs) hold unchecked power to impose policies and override public opinion. In 1994, the government imposed a tax on the export of raw cashew nuts -- the backbone of the economy since the 1960s -- in an effort to save the local nut processing industry.

However, it was ordered to adopt textbook free-market policies by the Bank and remove the taxes, a main condition of the Bank's 1995 program in the southern African nation. Trade unions and civil society were vehemently opposed to the policy, but the government complied and began reducing the taxes.

But two years later Washington changed its position, admitting that the Bank had erred. Independent studies had supported Mozambique's assertion that removal of the taxes would promote the export of raw cashew nuts to countries that process them, such as India, in turn dismantling the local processing industry.

For Moldova, the Bank insists it sees a bright future for the country.

"Good prospects lie ahead," Carlos Elbirt, the Bank's resident representative in Moldova said before the release of the loan in December.

"To make them a reality, we would like to stress the need to maintain a stable political climate, to continue much needed privatization, to increase the efficiency of social expenditures," Elbert said.