International Political Economy - Case Study #1 Zambia.

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Ernie Gilbert

International Political Economy

Ken Gilmore

Case Study #1 Zambia

        Beginning in 1992 some 50 countries began implementing International Monetary Fund (IMF) structural adjustment programs (SAP).  These programs were designed to help third world countries become more developed and to diversify their economies. When a country can no longer continue borrowing money, adjustment is deemed appropriate and often necessary. Usually the IMF promotes diversification of the nation’s economy. This creates a wider base of influence in the global market, hopefully pulling said nation out of debt.  The IMF SAPs are designed to help this adjustment take place, but to who’s benefit? Consequently these programs have become extremely controversial. Do these SAPs leave their host countries better off? Zambia is one such country. Its results show that the SAPs are ineffective because they do not address specifics, communicate efficiently with themselves, or improve the state’s own well-being.

        Throughout the 70s and late 80s Zambia’s main cash export was copper. In 1975 copper prices plummeted on the global market drastically reducing Zambia’s main source of monetary income. Zambia was trapped between a rock and a hard place. The high price of international oil increased the costs of manufactured goods that Zambians had to import from first-world countries. In those countries the inflation caused by the increase in energy prices discouraged purchases and slowed manufacture. Consequently, raw materials were in less demand. To solve this problem Zambia obtained low conditionality loans from the IMF. IT was clear that Zambia needed to restructure its economy to reduce its dependence on copper earnings. It was then proposed that Zambia should turn to non-manufactured agricultural products. What was the real motive behind such a proposal? Where the IMF representatives defending the first world’s levels of development or did they truly see a comparative advantage in Zambian agriculture? With the economy going downhill the Zambian government had little choice than to except the terms of the “low conditionality” loans. These loans and the subsequent SAP ended up taking power away from the national government.

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        One cannot analyze the Zambian SAP without looking at the currency auctions which devastated the agricultural base. No sector of Zambian economy was left untouched by the auction. In this system those companies or individuals (i.e. Farmers, etc) who wished to export would bid on foreign currency (mainly U.S. dollars). This was great for those who had money to spare; they were able to devalue their kwacha and to win the bids. This however was extremely damaging to the rural farmers. The ironic factor was those industries defined as critical domestic sectors were exempt from the auction. In other ...

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