INTERNATIONAL POLITICAL ECONOMY SERIES

General Editor: Timothy M. Shaw, Professor of Political Science and International Development Studies and Director of the Centre for Foreign Policy Studies, Dalhousie University, Nova Scotia, Canada

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David Wurfel and Bruce Burton (editors) THE POLIDCAL ECONOMY OF FOREIGN POLICY IN SOUTHEAST ASIA

Indebted Development Strategic Bargaining and Economic Adjustment in the Third World

Howard P. Lehman Department of Political Science University of Utah

Palgrave Macmillan UK

ISBN 978-1-349-22733-4 ISBN 978-1-349-22731-0 (eBook) DOI 10.1007/978-1-349-22731-0

©Howard P. Lehman 1993 Softcover reprint of the hardcover 1st edition 1993 All rights reserved. For information, write: Scholarly and Reference Division, St. Martin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010

Fust published in the United States of America in 1993 ISBN 978-0-312-09635-9 Ubrary of Congress Cataloging-in-Publication Data Lehman, Howard P. Indebted development : strategic bargaining and economic adjustment in the Third World I Howard P. Lehman. p. em.- (International political economy series) Includes index. ISBN 978-0-312-09635-9 I. Structural adjustment (Economic policy)-Developing countries. 2. Developing countries-Economic policy. 3. Debt relief­-Developing countries. I. Title. ll. Series. HC59.7.L35165 1993 338.9'009172'4-dc20 92-47353

CIP

To Jackie, Katherine and Julia

Contents

List of Tables viii

List of Acronyms X

Acknowledgements xii

1 Introduction: Strategic Bargaining and Economic Adjustment in the Third World 1

2 Strategic Priorities of the International Creditor Regime 30

3 The State and Economic Adjustment Strategies 64

4 The State and Debt Management Strategies 119

5 The State's Distributive Policies Under Indebted Development 167

Conclusions: The Process of Indebted Development 206

Index 217

vii

List of Tables

1.1 Domestic Economic Indicators, 1974-93 18 1.2 Foreign Economic Indicators, 1974-93 19 1.3 External Debt Indicators, 1974-93 20 1.4 External Debt for Brazil, Kenya and Zimbabwe,

1985-92 23 1.5 External Debt for Brazil, Kenya, and Zimbabwe,

1985-92 23 1.6 Debt Service Payments for Brazil, Kenya and

Zimbabwe, 1985-92 23 1.7 Source of Foreign Loans by Type of Creditors for

Brazil, Kenya, and Zimbabwe, 1985-92 24 2.1 Debt Indicators for the Baker 15, 1985-88 38 2.2 Commercial Bank Provisioning 43 2.3 Net Resource Transfers, 1985-1988 48 3.1 Origins of Gross Domestic Product in Kenya,

1985, 1990 74 3.2 Kenya's Trade Balance, 1985-1992 76 3.3 Trend of Gross Domestic Product of Kenya,

1985-1992 77 3.4 Zimbabwe's Trade Balance, 1985-1992 91 3.5 Trend of Gross Domestic Product of Zimbabwe,

1985-1992 92 3.6 Brazil's Inflation Rate, 1985-1992 102 3.7 Trend of Gross Domestic Product of Brazil,

1985-1992 108 3.8 Brazil's Trade Balance, 1985-1992 108 4.1 Kenya's Total External Debt by Creditor, 1985-1992 122 4.2 Kenya's Debt Ratios, 1985-1992 122 4.3 Kenya's Debt Service Indicators, 1985-1992 123 4.4 Zimbabwe's Total External Debt by Creditor,

1985-1992 131 4.5 Zimbabwe's Debt Ratios, 1985-1992 132

viii

List of Tables ix

4.6 Zimbabwe's Debt Service Indicators, 1985-1992 133

4.7 Brazil's Total External Debt by Creditor, 1985-1992 140 4.8 Brazil's Debt Ratios, 1985-1992 140 4.9 Brazil's Debt Service Indicators, 1985-1992 142 5.1 Sectoral Distribution of External Loans Guaranteed

by Kenya, 1977-1983 175 5.2 Expenditure by Function of Kenya's Central

Government, 1970-1989 178 5.3 Subsidies in the Zimbabwe Economy, 1980/81-

1984/85, 1989/90-1991/92 182 5.4 Public Sector Investment Program

Expenditures, 1980-84, 1990 183 5.5 Expenditure by Function of Zimbabwe's Central

Government, 1982-1989 188 5.6 Expenditure by Function of Brazil's Central

Government, 1975-1989 200

List of Acronyms

AMA ATRR CGT CUT CZI DFCK ESAF FIC FORD ICDC

ICERC ICO IDA IFI IMF IPC lSI KANU LffiOR MIGA MYRA NIC OGIL PFL PMDB PSIP PTA OAU OPIC SAF

Agricultural Marketing Authority Allocated Transfer Risk Reserve General Workers' Central Central Workers' Union Confederation of Zimbabwe Industry Development Finance Company of Kenya Enhanced Structural Adjustment Facility Foreign Investment Committee Forum for the Restoration of Democracy Industrial and Commercial Development

Corporation Inter-agency Country Exposure Risk Committee International Coffee Organization International Development Association International Financial Institutions International Monetary Fund Investment Promotion Center Import -Substituting Industrialization Kenya African National Union London Inter-Bank Offered Rate Multilateral Investment Guarantee Agency Multi-year Restructuring Agreement Newly Industrializing Country Open General Import Licensing Liberal Front Party Brazilian Democratic Movement Party Public Sector Investment Program Preferential Trade Area Organization of African Unity Overseas Private Investment Corporation Structural Adjustment Facility

X

List of Acronyms xi

SAL Structural Adjustment Loan SAP Structural Adjustment Program UDI Unilateral Declaration of Independence ZIC Zimbabwe Investment Centre

Acknowledgements

It is only appropriate to incur my own personal debts while engaged in a research project on indebtedness. I am in debt to many individuals and institutions for advice and assistance over the course of this study.

The book originated several years ago at the University of Minnesota. I am grateful for the valuable comments I received from Bud Duvall, John Freeman, Gary Wynia, Allen Isaacman, and Robert Kudrle. In the intervening period, I received support and encouragement from Valerie Assetto, Thomas Callaghy, Edward Epstein, John Francis, Stephan Hag­gard, Don Hanson, Jennifer McCoy, and Carol Thompson.

During my research, I encountered a number of helpful people who contributed to this study by providing needed information and entrance to research libraries: Susan Strange and the library of the London School of Economics; Stephany Griffith-Jones and the library of the Institute of Development Studies at the University of Sussex; and Thomas Bryne and the Institute of International Finance. I also profited from the assistance given to me by the library staffs at the Joint World Bank-International Monetary Fund Library, the Library of Congress, the University of Nairobi and its Institute for Development Studies, the University of Zimbabwe, and the research libraries associated with several government ministries and international banks.

The field research in Kenya and Zimbabwe could not have been accomplished without the resolute support of Dr Nicholas Nyangira, Chairman of the Department of Government at the University of Nairobi, and Dr Rukudzo Murapa, Chairman of the Department of Political and Administrative Studies at the University of Zimbabwe. I thank them both for appointing me as Research Associate.

Many of the individuals mentioned above introduced me to an exten­sive network of people associated with debt management and economic adjustment strategies. Since I promised confidentiality to the more than 200 respondents who took time out of their busy schedules for interviews, I cannot individually thank them. I am, however, extremely appreciative and grateful for not only their time and input, but their encouragement and genuine interest in this study.

Financial support came from several quarters, including the National Science Foundation (SES-8410519), the University of Utah Research Committee, the University of Utah's College of

xii

Acknowledgements xiii

Social and Behavioral Science, and its Department of Political Science.

In turning this manuscript into a book, I owe much to Timothy Shaw for his time, patience, and constructive criticisms as series editor and to Clare Wace of Macmillan who helped guide the manuscript into a publishable form.

Parts of this book were originally published in a different version in World Politics ( 1992), 44, pp. 600-644, ©The John S. Hopkins University Press; in Studies in Comparative International Development (1990), 25, pp. 37-72, ©Transaction Publishers; and in the African Studies Review ( 1992), 35, pp. 1-34, ©African Studies Association.

Finally, I owe the greatest debt to Jackie, Katherine, and Julia to whom this book is dedicated.