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Wednesday, 30 July 2008

Another IMF / World Bank reform horror show...

Mozambique was forced by the World Bank and IMF to liberalise its cashew industry in the 1990s. A policy which provided little benefit for poor cashew farmers and led to the bankruptcy of factories in most cities. You can read more here.

6 comments:

  1. Wait, they barely mention the poor cashew farmers !

    And when they do, they actually say that the prices rose and that the factories closed because they were out-bidded by Indians.

    I don't know why that should be "little benefits".

    And that's the issue with this kind of article (or with movies like "Life and Debt"), they ignore the other side of the story. Raw cashew prices were depressed by the export tax. A proper cost-benefit analysis should weight the rural wages and the urban jobs, not just lament about closed factories.

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  2. Oh..I was not reciting the article there...I was simply recalling what I heard at the time...lol!

    This is a celebrated case of poor IMF reform..I am surprised you have never heard about it..infact the report mentioned there was done by Rodrik and his buddies as far back as 2002 I think...

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  3. yeah i missed it.

    i'll read the analysis and come back with my comments.


    but this article was bad. lol.

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  4. http://www.hno.harvard.edu/gazette/2003/03.06/01-cashews.html

    "The World Bank exaggerated benefits and its opponents exaggerated the cost and understated the benefits," Rodrik said.

    With the reforms forced upon it, the Mozambique government did little to sell them to the populace, Rodrik said. Factory owners, who had just bought the factories during a recent government privatization, had the rug pulled out from under them by the reforms.
    The prevailing sense that the government wasn't committed to the reforms prompted the cashew processing factory owners to keep the factories open and the unemployed factory workers to not look for other work. Instead, factory owners lobbied the government to rescind the reforms and workers took to the streets in demonstrations.
    Out in the countryside, farmers considering whether to plant more cashew trees also weren't sure what the government would do and so decided not to take a chance and plant more trees.

    The net effect from the reforms, the study found, was a benefit of about $6.6 million on an annual basis generated by new efficiencies in the cashew sector. That was largely offset by an estimated $6.1 million loss annually on account of unemployment among the processing industry's 11,000 workers. Rural farmers, meanwhile, did see some benefit, but it only averaged out to between $5 and $6 per year for the average cashew-growing household.
    "Total gains for the economy were probably close to nil because the gains to poor farmers were offset by unemployment in the cities," Rodrik said. "It turns out it was a really puny affair for the amount of controversy generated."

    http://www.project-syndicate.org/commentary/rodrik8

    The policy was met with fierce opposition from the domestic cashew-processing industry, which had just been privatized. The case soon turned into a cause celebre for the anti-globalization movement. While the World Bank points to the rise in prices as evidence of the gains that accrued to farmers, its opponents point to the processing plants in urban areas which have been shutdown and the thousands of workers who remain unemployed.

    What went wrong? The reform paid little attention to some key realities. First, traders and intermediaries rather than farmers captured most of the benefits. Second, since the world market for raw cashews is less competitive than that for processed cashews, Mozambique suffered a loss in its external terms of trade. Third, poor political management of the reform undercut the dynamic gains that could have resulted.

    The main failure was that liberalization did not send credible signals about future policies. So farmers refused to plant trees, cashew processors refused to take their resources elsewhere, and urban workers refused to look for other jobs.



    So Rodrik thinks it was a wash with the cashew traders being the main winners and seems very vocal about the politics of the policy.

    I don't know if all that qualifies for only a WB/IMF horror story. The idea of anti-globalization protestors carrying water for private conglomerates like Anglo American Corporation always reminds me this.

    As always Rodrik's recommendations are sane but they require thouroughly thinking about the reforms.. And that's something neither the IMF/WB, nor the Mozambican government were ready to do.

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  5. "Total gains for the economy were probably close to nil because the gains to poor farmers were offset by unemployment in the cities," Rodrik said. "It turns out it was a really puny affair for the amount of controversy generated."

    Typical banker speak. I can assure him that for the people who lost their livelihoods, it was not 'a really puny affair'.

    The problem with bankers and these macro-economists is that they do not think like or 'get' business owners or farmers. These farmers work on very small margins to begin with. For instance...

    "Out in the countryside, farmers considering whether to plant more cashew trees also weren't sure what the government would do and so decided not to take a chance and plant more trees."

    Decided not to 'take a chance'? Who will compensate them when things turn out badly - no one. What Rodrik dismisses as 'taking a chance' for the farmer would represent bankruptcy. But perhaps Rodrik thinks of bancruptcy in Mozambique as blithely as he would in the USA.

    This is why policy should never be decreed from Geneva.

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  6. Typical banker speak. I can assure him that for the people who lost their livelihoods, it was not 'a really puny affair'.

    But what was it for the poor farmers who made more ?
    What was it for the poor cashew farmers when the export tax was put together (which lowered the price of cashew) ?

    (that's one notion you seem to constantly fail to understand. Life and Debt had the same problem.)


    Decided not to 'take a chance'? Who will compensate them when things turn out badly - no one. What Rodrik dismisses as 'taking a chance' for the farmer would represent bankruptcy.

    It's not a dismissal, he says that farmers didn't plant more trees as the WB expected them to do BECAUSE there were too many uncertainities.

    So yeah, "taking in chance" here means what it means "gambling", "taking a risk".

    But perhaps Rodrik thinks of bancruptcy in Mozambique as blithely as he would in the USA. 

This is why policy should never be decreed from Geneva.

    You're funny.
    Rodrik was already writing against the Washington consensus when you were probably still learning how to count.
    And if you did read the article, instead of googling Lyndon Larouche's brainfarts, you'd learn that Rodrik actually says that the biggest issue with that policy was that it was imposed from DC.


    But I guess all that takes rational reading and not emotionnal dismisal of anything one doesn't like.

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