Economic crisis and adjustment in Zaire

This was not the first such program Zaire adopted, but it was by far the most comprehensive. The exchange rate was devalued by some 78%; money supply growth and monetary financing of government expenditures were reduced; and ceilings were placed on government expenditures to reduce budgetary deficits. The government also reformed the exchange and trade systems and the tariff structure, and liberalized prices and marketing in agriculture. The IMF praised Zaire for boldly trying to eliminate a host of imbalances and distortions that had long plagued the Zairian economy. Four years later, in 1987, these reforms were extended in a major structural adjustment package adopted in collaboration with the IMF and the World Bank. Initially, the stabilization measures seemed to work. In the first year of the program, the inflation rate was reduced from more than 100% in 1983 to less than 20%. This ensured that the nominal devaluation translated into a substantial real devaluation, and contributed to an improvement in the balance of payments situation. Performance on the fiscal and monetary fronts was within program guidelines. Real GDP grew by about 3% in 1984, a turnaround from the contraction of 1982 and stagnation of 1983. These successes proved to be short-lived. By 1986, inflation, the budget deficit, and the balance-of-payments deficit were once again strongly on the upswing. At the start of the 1990s, inflation was raging in the area of 100% or higher. Thus, after almost a decade of stabilization and adjustment policies, the economy today can hardly be said to have been put on a path of adjustment and growth. The first objective of this study is to explain why adjustment and policy reform undertaken by Zaire in the 1980s has taken such an uneven and ultimately unsuccessful course. In addition, because of the extent of poverty in Zaire whose per capita GNP is officially estimated to be about US$150, among the lowest in the world the impacts on the welfare of the poor of measures taken are of particular concern. The second objective, therefore, is to assess the effect of policies undertaken before and during structural adjustment on the welfare of low-income groups in Zaire. Chapter 2 provides basic background information on Zaire"s geography, demography, and economic and political structure. The important sectors of the economy are discussed in detail. A discussion follows of the unrecorded or parallel economy in Zaire and its implications for the interpretation of the statistics used in the analysis to follow. The last section of the chapter briefly describes the political and institutional structure and its implications for economic policy and reform. Chapter 3 traces the evolution of economic policy and of the economy itself from independence in 1960 through the adoption of major policy reforms in 1983. The chapter shows how the interaction of economic policies, such as fiscal and monetary policies and external borrowing by the public sector, with external events, led to serious internal and external imbalances and necessitated major adjustment measures. In Chapter 4, the period of stabilization and structural adjustment (1983 to present) is examined. The chapter is divided into two parts, the first analyzing stabilization measures and structural reforms undertaken from 1983 to 1986, and the second covering reforms undertaken as part of the 1987 structural adjustment program as well as subsequent measures. Attempts are made to assess both the effectiveness of implementation of various policies and their impacts on the performance of the economy. Chapter 5 extends the analysis of the previous chapters by examining in detail the history and the performance under reform and adjustment of several sectors which play crucial roles in the Zairian economy. These are agriculture, transportation, and mining. A section is also devoted to the evolution of Zaire"s major external debt problem. In Chapter 6, a preliminary profile of the urban and rural poor in Zaire is presented. Several indicators of welfare will be examined, including incomes, food consumption, nutrition and health, and access to social services. The economic status of women and the connection between gender and poverty are discussed. As indicated, a major aim of this paper is to assess the effect of the adjustment policies on the poor in Zaire. Unfortunately, direct quantitative information is as yet unavailable. Nevertheless, our knowledge of how households interact as consumers and producers with the macroeconomy can be used to shed light on the connections between various macroeconomic policies and the incomes and welfare of the poor. The chapter concludes, therefore, with a preliminary assessment of the effects of adjustment on the most vulnerable population groups in Zaire. (Author abstract)