SAPRIN CHALLENGES WORLD BANK
Yet, at mid-decade, the IFIs were still woefully out of touch with local realities. Their analysis of these grave and intensifying problems still differed from that of the citizens of these countries in four significant ways. The IFIs continued to portray the problems as: 1) transitory in nature; 2) essentially limited to the social sector; 3) caused primarily by factors other than the policies themselves; and 4) resolvable through adherence to the same policy package. Once again, the needs, priorities, analysis, knowledge, rights and voice of the people were being ignored.
In June 1995, a group of non-governmental organizations approached the then new president of the World Bank, James Wolfensohn, with a proposal to address this exclusion by engaging civil society in an exercise with the Bank to assess jointly the impact of adjustment programs. The idea was to provide Wolfensohn and his managers a fundamentally different perspective on economic policy, to democratize economic policymaking and to legitimize a role for organized civil society in this key area of development programming. Wolfensohn, who was soon to embrace civil society publicly as a potentially major player in the development process, agreed to the partnership.
Subsequent negotiations between some two dozen NGOs from around the world and the Banks Economics Vice-Presidency expanded the original proposal to hold well-organized, highly inclusive public fora in ten-to-twelve representative countries by also including participatory, gender-sensitive research that would take a political-economy approach in determining the impact of economic adjustment policies and in developing alternatives. When the project was officially launched in July 1997, eight countries were involved in what had come to be known as the Structural Adjustment Participatory Review Initiative (SAPRI). They included Ecuador and El Salvador in Latin America; Ghana, Mali, Uganda and Zimbabwe in Africa; Bangladesh in Asia; and Hungary in Central Europe.
The Bank, however, made only a limited and, in the end, unsuccessful attempt to secure the participation of the governments of Mexico, Argentina and Brazil, leaving no large Latin American country in the Initiative. The government of the Philippines, another emerging-market nation expected to be included in SAPRI, also chose not to participate. In the cases of Mexico and the Philippines, civil-society organizations have elected to carry out independent exercises under the banner "Citizens Assessment of Structural Adjustment" (CASA), convening public fora and conducting field research along the lines of the activities carried out in the SAPRI countries. Less ambitious exercises designed to elicit civil-society views on alternatives to structural adjustment have since been launched in Argentina and Brazil.
By 1997, the SAPRI/CASA national exercises were in full swing, eliciting an extraordinary response from a broad range of sectors and civil-society organizations in virtually all of the countries. With few if any other official outlets for their frustrations and ideas, small-business, small-farm, labor, women's, environmental, indigenous-peoples', religious, community and a variety of other citizens' groups joined forces across each country to discuss economic issues, form civil-society steering committees and technical teams, and select priority adjustment issues to discuss with the World Bank and their governments. These national networks -- 100 to 750 organizations strong -- came to form the backbone of the Structural Adjustment Participatory Review International Network (SAPRIN), the global civil-society partner of the Bank in SAPRI. They continue to operate under the guidelines set by the 23-member SAPRIN global Steering Committee on which they are represented, and they coordinate activities with three Regional Centers in Accra, San Salvador and Bangkok, as well as a Secretariat in Washington, D.C., which also handles ongoing relations with the Bank.
By September 1999, the first two phases of the ten national exercises -- extensive, broad-based civil-society mobilization and the convening of Opening National SAPRI Fora -- were completed. These fora provided public platforms from which civil-society representatives presented their experience with, and analysis of, the effects of specific adjustment policies on various sectors and population groups. Policies of liberalization -- of trade, prices and the financial and agricultural sectors -- were signaled as a major area of concern in most of the countries, along with privatization policies, labor-market reform, the deregulation of foreign investment, and public-expenditure reform, particularly social-sector cost-recovery policies.
Results of the National Fora
The economic and social effects of these adjustment policies have been extensive and are indicative of the civil-society critiques of similar policies across much of the rest of the world. Although it would be premature to draw definitive conclusions before the research phase of all the country exercises has been completed, it is possible to identify clear trends.
As a result of privatization policies, for example, there has been an increase in unemployment and job insecurity, workers' rights have been weakened, regulatory efforts have been ineffectual, user costs have increased while service quality has declined, and service expansion has not met needs. In some cases, privatized industries have proven to be more inefficient than public enterprises. Liberalization policies have had a significant negative impact on agricultural production and the rural sector, women, unskilled workers, and small and micro-enterprises, thereby exacerbating inequalities and leading to a further concentration of wealth. Local industry has suffered, and priority has not been given to reorienting and strengthening local productive capacity. The labor-market reform program has led to greater job instability, poorer working conditions and higher incidence of abuse of labor rights. A fall in real wages, declining purchasing power and greater inequality in the distribution of income have accompanied the move to greater labor-market flexibility. Fiscal-policy reform, in the form of public expenditure cuts and imposition of user fees, has led to reduced access by the poor and disadvantaged groups to quality health care, education and housing.
Specific country experiences with these policies is presented below.
Privatization - of industry and public utilities
Privatization in Uganda has resulted in some 350,000 people being retrenched, a failure to increase industrial efficiency, and, with the private sector not expanding fast enough, a sharp increase in unemployment. Those laid off were not prepared for life in the private sector, as no training was provided. Some did not even receive severance packages, and for all those who did, the packages were too small, according to participants at the SAPRI forum. One result has been an increase in informal-sector activity. Meanwhile, among the employed, expatriates have received the higher-level jobs, leaving Ugandans with the low-level posts.
Civil-society representatives complained that the new owners of the privatized enterprises underpay their employees, offer no job security, and do not follow labor regulations. These participants pointed out that employers have defied the country's constitution by not recognizing trade unions and that any worker seen organizing a union is fired. With the Ministry of Labor reduced to the status of a department, officials have been unable to do much, and the laws that protect the rights of workers are weak or non-existent.
Participants at the SAPRI forum argued that the very threat of unemployment has led workers to compromise their rights when employers do not follow the law. With the economic architects not wanting to slow down the process of privatization, employers have proceeded to sweep aside trade unions. Payment of salaries is often late and, with no limit on overtime, employees are generally overworked, according to labor representatives. In addition, they explained that safety standards are low, with most privatized firms unwilling to adhere to safety regulations or to adequately invest in plant improvements.
In Bangladesh, forum participants noted that newly privatized firms experienced an increase in non-performing loans and defaults. Failure to assess the capacity of the local private sector, which in Bangladesh is highly underdeveloped, meant that many of the recently privatized industries have either shut down, are struggling, or grossly exploit labor. Privatization in the jute sector was disastrous. Because jute represents the lifeblood of Bangladesh's industrial sector, demise of the jute sector has had negative ramifications throughout the entire economy. Privatization of the sector led to a 50 percent decline in gross production. Most jute factories closed and 39,000 workers were laid off. Meanwhile, many of those who bought the jute mills at bargain prices are major loan defaulters.
Participants at the SAPRI forum partly blamed the World Bank for this mess since it had given incorrect advice, and said that the Bank should be held accountable when it provides faulty advice. In conclusion, participants felt that the economic reform process should be re-designed to boost indigenous-led industrialization, since this could lead to industrial dynamism and higher employment. They also insisted that all stakeholders need to be involved in this process because one of the reasons for the failure of the past and current economic reforms has been the exclusion of workers from the decision-making process.
The privatization process in Hungary is highly unpopular because of its negative impact on workers and on the value of firms. In 1994, only 35 percent of the population approved of the process. Between 1990 and 1996, 11 percent of state-owned firms (in terms of total equity capital) were liquidated, and another 20 percent of the value of the original equity capital was lost due to the privatization process. As a result of privatization, automation and the loss of the Soviet market, there has been a 30 percent reduction in the country's workforce, effected in part through early retirement. Romas, or gypsies, have been hurt the most, as they historically performed the dirtiest work at the lowest pay. They were forgotten during the privatization process and were thrown back into hopelessness.
Participants at the SAPRI forum pointed out that many people have lost their jobs in the on-going process of infrastructure privatization. Local governments are looking to privatize water and other utilities, but the experience in Budapest, where officials sold the water utility at 25 percent of its nominal value, does not inspire confidence in these plans. Furthermore, at the national level, it was charged that the government did not live up to the commitments it made to the unions. As a result, maintenance people have been laid off, thus also negatively affecting consumers, who have lost services.
The privatization of electricity distribution in El Salvador has resulted in increased rates, reduced access for low-income people and a notable decline in the quality of service. A lack of transparency in bidding processes and an overall lack of regulation of the private sector providers has contributed to these negative results.
To pay for increased rates, families have been forced to cut back on other expenditures and ration their use of electricity. Women often bear the greatest burden of increased prices because they have greater domestic and child-rearing responsibilities, often in addition to paid work outside the home. In an effort to ration electricity use, many rural families are resorting to more traditional energy sources -- especially collecting and burning wood -- which contributes to deforestation and generates a significant additional workload (mostly for women). Children have also been negatively affected by price increases, since families have reduced their expenditures for education and recreation. In an effort to supplement family income, children are sent to work, contributing to an increase in child labor. The impact of price increases is also seen among micro and small enterprises, many of which have been forced to close down because they can no longer afford to pay their electricity bills.
Access to electricity has also been restricted. Participants at the SAPRI in San Salvador forum noted that low-income communities in rural areas have been hardest hit since the newly privatized electric companies do not see most rural areas as sufficiently profitable and therefore prefer to export power to neighboring countries. Such a profit-driven mentality, forum participants argued, has overshadowed concerns about quality and expansion of services. As a result, the quality of service has dropped considerably. There are regular and prolonged blackouts in some areas, customer complaints are not addressed, customers are not provided with basic service and billing information, and overcharging is a common practice. Cases like the over-exploitation of geothermal energy in the town of Berlin and the massive deforestation caused by CLESA (a private electricity distributor) in Usulutan province were used to illustrate the need for environmental impact assessments to block the ecologically destructive activities of the electric companies.
Liberalization Policies - in the areas of trade, prices, investment and finance
In Uganda, Finance Ministry and other official representatives argued that the agricultural-sector liberalization policy package -- which included the elimination of price controls, the abolition of marketing boards, the reduction or removal of export taxes, the elimination of import controls, and the liberalization of interest rates and the capital account -- has led to a steady growth in agricultural output (in part through expansion of land under cultivation), including food production, as well as crop diversification and increased food security. They acknowledged, however, that the terms of trade for food producers had fallen, that there have been negative effects at the local, or household, level, and that poor rural physical and financial infrastructure has limited the presumed benefits of liberalization.
Civil-society representatives pointed to other problems associated with the liberalization of the sector. The government has not consulted local producers in the process of policy formulation, and has instead imposed policies that do not address micro-level dynamics. With the elimination of government extension programs, farmers have been left ignorant of current world trends and prices for crops, and thus are vulnerable to exploitation by middlemen. This problem is exacerbated by the displacement of small-scale traders, which is reducing competition in the sector. In addition, with the liberalization of input markets, private traders now play the role of extension workers, advising on the farming methods such as the use of chemicals. There have been disastrous consequences, pointing to a need for a program to promote organic fertilizers and sustainable farming methods.
Liberalization has not turned the terms of trade in favor of agriculture, and relative prices have not improved for producers in spite of increases in farm-gate prices. Instead, agriculture and rural production are heavily taxed through high transport prices, due in part to impassable roads. Petty trading has become a more profitable pursuit, with transport owners profiting from a retail price mark-up in the capital, Kampala, which can reach ten times the farm-gate price. Reduced profitability for agricultural producers contributes in large part to the very high poverty level in villages. As a result, participants in the SAPRI forum said, liberalization is benefitting urban dwellers but not farmers.
Meanwhile, indigenous subsistence crops, such as millet, are disappearing because of the desire, it was explained, to produce cash crops such as bananas and maize. As a result, despite the government's view that there is an abundance of food, malnutrition is increasing in Uganda, according to civil-society participants. Furthermore, since women continue to produce the lower-income crops, it was argued that liberalization and privatization have benefitted men more than women.
As far as the small and medium-scale industrial sectors are concerned, it was felt that liberalization may be destroying local manufacturing, textiles being a case in point. High interest rates have discouraged small-scale enterprises, and stipulations in the investment code, it was argued, also effectively exclude local entrepreneurs. Finally, liberalization policies have not been supported by other necessary programs, such as skills training.
Small and medium-sized enterprises involved in production and retail services in Hungary have been badly hit, and many eliminated, by that country's open-trade policy. Civil-society participants at the SAPRI forum argued that these firms, which employ about 70 percent of all Hungarian workers, deserve, but have not received, special consideration. The retail-trade sector, in particular, suffered a crisis with the arrival of supermarket chains, often from abroad. Without forward linkages to Hungarian outlets, it was explained, food production is also being destroyed. The entry of supermarket chains and cheap goods from abroad, facilitated by the privatization process, has distorted national consumption away from local products, like milk, that are of high quality in Hungary.
The plight of small producers has been greatly exacerbated, participants explained, by the growth of unemployment and poverty and the reduction in effective demand. Under liberalization, not only has supply dropped considerably, but domestic demand fell about 15 percent from 1989 to 1994, with per capita food consumption down sharply. This drop in consumption, disposable income and domestic demand is explained by the fact that some 1.5 million Hungarians have lost their jobs, minimum salaries are being taxed, and utility rates, pharmaceutical costs, school-related expenses and other household expenditures are all substantially higher because of the country's budget cuts resulting from fiscal policy reform. People were unprepared for the high unemployment caused by the reforms, and the country is badly in need of a real social policy, it was argued, but little is being done about the growing impoverishment of a significant segment of the population.
An estimated 80 percent of Bangladesh's population makes a living from agriculture, making this sector extremely important to any discussion of national development. Participants at the SAPRI forum expressed their concerns over the fact that liberalization measures included in the structural adjustment program had resulted in a disproportionately high increase in the price of inputs (including fertilizers and other import-dependent inputs such as seeds and irrigation), while agricultural product prices have stagnated. The Agriculture Minister acknowledged that the sector had been neglected as a result of the structural adjustment program (SAP) and that privatization of the fertilizer sector had led to adulteration and cheating and placed the government in the position of having to protect corrupt business people from attack by angry farmers whose crops had failed. Civil-society participants noted the polarization and pauperization of the peasantry as a result of the SAP and emphasized the devastating impact of the withdrawal of subsidies for the poor.
Civil-society participants at the forum in Ghana noted that under the country's SAP there has been a shift in agricultural production, with more land and resources devoted to export crops and less to domestic food production. This has led to a decline in domestic food production, reduced food security for the poor, lower agricultural investment, and increasing income disparities between export and domestic food producers, exacerbating inequalities. The removal of subsidies and cutbacks in social services have had different impacts on women and men. Women, who produce 60 percent of food, have suffered disproportionately from the elimination of subsidies, the drying up of credit and the surge of food imports as a result of trade liberalization.
The flood of cheap imports along with higher input prices (resulting from the removal of subsidies) have harmed local food producers. These measures, together with high interest rates and changes in the lending policies of the agricultural development bank, have contributed to a substantial reduction in agricultural investment, leading to declining productivity among food producers. In addition, devaluation and domestic inflation have led to higher food prices, which have not been matched by similar increases in wages. For those who still have jobs, real wages have not yet regained their 1970-74 levels. And, with increasing layoffs, the one-third of rural households which are net consumers of food are getting poorer and hungrier.
In El Salvador, the SAPRI forum addressed the issue of liberalization of the financial system and its impact on access to credit by micro and small enterprises. It was agreed that financial sector liberalization has led to increased intermediation costs and a reduction in credit for small and micro-enterprises, which is contributing to a concentration of wealth.
Since the structural adjustment program was initiated, active interest rates (charged on loans) have gone way up, while passive rates (given on savings) have declined. There is also a problem with special "moratorium" rates, which are imposed on overdue loans, and the practice of charging interest on the interest on loans. This has forced many businesses into bankruptcy as their debt spirals out of control. Another result of liberalizing the financial system has been the concentration of credit in the commercial and service sectors, which now get favorable treatment from financial institutions. Very little credit is channeled to strategic, although less directly profitable, sectors such as agriculture (along with other rural enterprises) and infrastructure, and the role of development banks and agencies that support these and certain industrial sectors has been considerably weakened.
Participants at the SAPRI forum argued that since the SAP was introduced more collateral is required to receive credit, and long-term loans are harder to obtain for small-scale enterprises. For example, artisans have serious difficulties in accessing credit, even when they present national and international purchase contracts, because the banks refuse to recognize these contracts as collateral. Women also have a harder time getting credit because of the strict requirements set by banks. The financial system offers no special programs for small-scale or women-owned enterprises, further contributing to the concentration of credit in the hands of a small number of already favored businesses and economic sectors.
Liberalization policies in the areas of trade and finance were a central focus of the SAPRI forum in Ecuador. According to forum participants, trade-liberalization policies and the export-oriented strategy under the adjustment program have severely affected production and employment and resulted in a process of de-industrialization. The country has lost productive capacity and the ability to feed itself. Both the agricultural sector and national industry have been unable to compete with cheap imports or generate conditions that would improve production in order to compete effectively in foreign markets. In fact, Ecuador's international competitiveness has depended on currency devaluations instead of on expansion of domestic productive capacity. Trade liberalization has boosted not the levels of production for export, but rather the profits of large exporters, who have benefitted most from devaluations under adjustment. Meanwhile, restrictions on foreign investment have been eliminated, placing domestic producers at a further disadvantage.
Deregulation of the financial sector and the accompanying monetary and financial measures were also cited as negatively affecting national production, particularly in the agricultural and small-business sectors. Forum participants noted that financial bailouts have benefitted private banking interests -- which have favored big business -- while the National Development Bank has been forced into bankruptcy, making access to credit by small and medium-scale enterprises even more limited. Devaluations have negatively affected purchasing power, particularly that of low-income families. In addition, the lack of price controls has led to abuse by speculators, who reap large profits, particularly where monopolies exist. Interest rates are reaching as high as 70 percent and are engendering further speculation while devastating national production. Forum participants also criticized the newly applied tax of one percent on all financial transactions, claiming that it is inflationary and places the greatest burden on low-income groups.
The trade liberalization program in the Philippines has led to increased income inequality and decreased food security, said SAPRI forum participants. They explained that domestic food producers have been negatively affected by the lowering of trade barriers, as well as by cuts in essential government services, both of which were mandated under the adjustment program. Insufficient state support for infrastructure services such as irrigation, post-harvest facilities and farm-to-market roads has meant that small-scale farmers are unable to improve productivity levels or get their products to market at prices that cover their costs. When trade barriers were lowered, many small-scale farmers were unable to compete with cheaper imports. The cultivation of rice and other staples was said to be on the decline, and many small-scale farmers who cultivate food crops were finding themselves further marginalized.
While some larger-scale farmers have been able to begin cultivation of cash crops for export, participants noted that any gains made in the sector can be strongly affected by international price fluctuations. They stressed that this type of cultivation also imposes large environmental and social costs on large sectors of the population. The extensive use of agrochemicals in export-crop production has increased soil degradation and the loss of biodiversity, they explained, and displacement of rural communities to urban settings has led to further marginalization of small-scale farmers.
The removal of barriers to the flow of goods and capital has also harshly affected the electronics, textile and other industries, explained workers and the urban poor. Representatives of those groups testified as to the impact of liberalization policies on wages, employment and working conditions. Workers in the electronics industry spoke of their factories closing down due to a lack of competitiveness in the global market. When the cost of production is considered too high in the Philippines, factories are moved to other countries where labor is cheaper. Participants testified to an increase in foreign control of industries and a trend of transnationalization of production. With such industry mobility and specialization, there has been an increase in unemployment that has fueled the growth of the informal sector and forced many skilled workers to migrate overseas.
Liberalization of investment has also been a major component of the adjustment program in the Philippines. The Mining Act of 1995, for example, opened the sector to significant foreign investment and provided incentives such as tax holidays, tariff-free imports, full repatriation of investments and earning and freedom from expropriation. Forum participants asserted that these policies have generated little employment, caused environmental destruction, created health problems and endangered lives, violated human rights, exacerbated women's oppression, dislocated indigenous peoples and Moro communities, and provided no compensation for residents of affected areas. The physical and cultural dislocation of indigenous peoples and the disregard for their right to their ancestral domain, it was argued, is a critical land-tenure issue closely linked to the liberalization of the mining sector. Participants also emphasized health and environmental problems resulting from the increase in open-pit mining, which included increases in diseases and deaths from poisoning and the destruction of biodiversity, soil degradation, increased toxicity of the fish catch, and the depletion of water resources.
Participants in the SAPRI forum in Zimbabwe contended that the rapid liberalization of trade and finance had left businesses and farmers unprepared to compete in the global marketplace. The trade liberalization measures first introduced in 1991 were designed to open the country to foreign goods, introduce its products to the international market, and increase output, earnings and employment in both the industrial and agricultural sectors. In reality, only the first of these goals has been achieved: while the national market has been flooded with cheap imports, local businesses have been unable to find significant external markets for their products. Consequently, small and medium-sized industries have been forced to reduce production, go out of business or switch from manufacturing to importing, leading to a large drop in manufacturing output. With companies forced to lay off workers, employment dropped sharply between 1991 and 1998 and wages have deteriorated.
The liberalization policies have also undermined the agricultural sector -- which provides a livelihood for 70 percent of the nation's population -- leading to food shortages and growing inequality. Trade barriers, price controls, subsidies and production quotas were removed as part of a program the government anticipated would transform the country's small-scale, subsistence agriculture into widespread commercial farming. Participants noted that the majority of rural Zimbabweans have not benefitted from this program. Some large-scale farmers have shifted production from food crops to high-revenue generating export crops such as paprika and cotton, contributing to local food shortages. Smaller-scale farmers have been hurt by the lack of access to key inputs such as land, farm inputs and credit and the loss of timely information previously provided by marketing boards. Overall food production during the 1990s has not kept up with population growth, so the country has been forced to import food, adding to the national debt.
Both sectors have been negatively affected by the liberalization of financial markets. The removal of interest-rate restrictions on banks has led to rates rising five-fold to nearly 50 percent since the adjustment program was launched almost a decade ago. Even large-scale businesses cannot afford those rates and have been forced to finance their activities through retained earnings. Smaller businesses and those in the informal sector, lacking that option, have been especially hard hit by the high interest rates. Investment has increased in speculative money markets rather than in productive, employment-generating endeavors.
In Mexico, forum participants explained that as part of the process of negotiating and implementing NAFTA, a series of liberalization policies was adopted, including the removal of tariff and non-tariff barriers restricting imports, the elimination of subsidies to import-competing industries, and currency devaluations. Many of these measures were introduced in adjustment programs prior to NAFTA's implementation. Foreign capital was granted open access to economic sectors that had traditionally been restricted, while national production, particularly small and medium-scale business, was further disadvantaged due to an increased tax burden. Financial-sector liberalization included measures that removed controls on interest rates, the privatization and deregulation of financial services, and a drastic reduction in the role of the state in allocating credit.
These measures have dealt a severe blow to the country's productive apparatus. The domestic content of finished products for both export and internal markets has been reduced. Many small and medium-scale enterprises have been displaced by foreign corporations because of the fiscal advantages granted to the latter and the greater difficulty faced by smaller domestic firms in obtaining access to credit. Participants estimated that 17,000 to 20,000 small businesses had been forced into bankruptcy as of 1998 as a result of trade and financial-sector liberalization.
The negative effects of these policies have been particularly dramatic in rural areas as a result of the impact on the agricultural sector. Participants cited the inability of farmers to compete with the U.S. agricultural industry, particularly in basic grains, resulting in part from the subsidization of this sector in the United States and from the lack of subsidies available to Mexican farmers. Small producers have been those hardest hit and, with them, food security, as the credit market has been reoriented to large-scale, modern and capital-intensive production processes and export opportunities. These conditions have induced higher levels of migration to urban areas as well as across the border to the United States. They have also exacerbated the tendency toward the unsustainable use of natural resources, leading to greater environmental degradation
Labor Market Reform - increased flexibility for employers at workers' expense
The policy of introducing more flexibility into the labor market in El Salvador has had a number of negative consequences for workers and their families. The policy encourages increased use of temporary, part-time workers, which has made employment more unstable. Work hours have also become more "flexible", often leading to longer work days with no overtime pay. A recurring problem, according to forum participants, is the firing of union workers and their replacement soon after with non-union employees. In the countryside, there is an increasing reliance on temporary day laborers, creating greater instability for rural families. In response, family members are migrating in larger numbers to already overcrowded urban areas, exacerbating social and environmental problems. It was pointed out that women are usually the greatest victims of labor violations after migration since they are forced to work in maquila assembly plants or as domestic workers, where even basic labor laws are often unenforced.
The policy of liberalizing wages has resulted in declining purchasing power. There were numerous complaints among forum participants that companies, taking advantage of the abundance of manual labor, do not comply with minimum wage laws. What's more, increased efficiency and productivity are rarely rewarded with higher wages. Low salaries and long work days are having a harmful effect on workers health and nutrition and making it increasingly difficult for workers to find affordable housing. More and more children are now entering the labor force in an effort to supplement declining family incomes. These children are usually forced to drop out of school to take jobs that pay "apprentice" salaries far below the minimum wage, although their duties are similar to those of regular, adult employees.
The policy of labor-market flexibility in Ecuador has led to greater job instability, poorer working conditions, and weakened respect for workers' rights, which, in turn, often leads to abuse by employers. The use of part-time employees, who receive no benefit packages, has become increasingly commonplace. These problems are most often present in the growing number of jobs located in maquila factories and free-trade zones. Meanwhile, wage policy has contributed to the insufficiency of salary increases to compensate for the inflationary effects on the cost of basic goods and the continuing rate increases for public services. Real wages have fallen precipitously during the adjustment decades of the 1980s and 1990s. At the same time, Ecuador has one of the highest levels of income inequality in Latin America, and under adjustment, the distribution of income has become increasingly regressive. Wages, which in 1980 accounted for 32 percent of GDP, currently comprise less than 15 percent of national income. Civil-society forum participants noted that adjustment has taken away more than one half of workers' incomes and has substantially increased unemployment and underemployment. Official figures show that open unemployment has risen from a level of four percent in 1980 to reach 13 percent of the economically active population, while underemployment is now over 55 percent. In addition, recent estimates show that rural underemployment has reached 68 percent.
In the Philippines, new labor-flexibilization rules and the drive to increase competitiveness have led industries to cut costs through various job arrangements, particularly the hiring of people as temporary workers. Few textile and garment factories, for example, hire regular workers, and, in fact, many shut down, fire workers and then rehire them on a contractual basis. These contract workers receive less than the normal minimum wage and have no benefits or job security. Different factories within an industry will often exchange their workforces in order to get around the law limiting contractual hiring to no more than six months. This practice, as well as other labor-flexibilization schemes have destroyed unions and reduced their bargaining power.
Labor conditions have also deteriorated in Zimbabwe under adjustment. SAPRI forum participants explained that the average rate of employment growth since the adjustment program began is half the growth rate of the labor force, meaning that new jobs are not being created fast enough to absorb new entrants into the labor force. Policymakers have neglected the sectors with the greatest potential for job creation -- the informal and small and medium-sized enterprises -- believing the formal sector to be the engine of growth. With the reduction or elimination of subsidies, however, private-sector employers have been forced to reduce costs in order to remain competitive. Deregulation has allowed them to make increased use of temporary, part-time contract workers who do not receive benefits and have no job security.
These changes have led to increased unemployment and decreased real wages. Those workers who do find full-time jobs are no longer guaranteed a living wage, and the effects of this reduced income have been exacerbated by rising prices. Inflation has increased from 15.5 percent in 1990, when the first adjustment program was implemented, to 68.8 percent at the time of the forum. The collapse of wages has meant that many workers live far below the poverty line. This has created a recessionary spiral, with falling purchasing power resulting in depressed demand, which, in turn, leads to further increases in unemployment.
In Mexico, measures taken to create flexibility in the labor market have modified employer-labor relations by giving the former greater discretion in determining employment conditions. This has meant greater use of part-time labor and temporary contracts and the absence of benefit packages. As a result, according to the forum participants, there has been an increase in job instability. Flexibilization has also meant a relaxation of labor-market regulation, oversight and enforcement mechanisms. This has led to a failure to recognize unions, respect collective-bargaining contracts, and enforce labor rights, causing a serious deterioration in working conditions.
Wage policy under adjustment has put a cap on salaries, causing a sustained fall in real wages and thus in the purchasing power of working people. Between 1976, when they were at their height, and 1998, real wages lost 90 percent of their value. In addition, the problem of unemployment has been exacerbated by a massive loss of jobs through the privatization of state-run enterprises and by the bankruptcy of the thousands of small and medium-scale producers impacted by the liberalization of trade and investment.
Forum participants spoke of the increasing difficulty that heads of households have in maintaining steady jobs due to flexibilization measures and asserted that those who are able to do so generally find that their incomes are insufficient to cover the basic needs of their families. Many are forced to seek a second job, which is difficult to find. Other alternatives sought, particularly by low-income families, include the incorporation of additional family members, often children, into the labor market and migration to urban centers or to the United States.
Forum and workshop participants affirmed that women suffer discrimination in the labor market and have thus been most negatively affected by labor-market flexibilization. Relaxing regulations on hiring and firing allows employers to discriminate against women by, for example, requiring job qualifications such as certification of non-pregnancy or participation in family-planning programs or by refusing to provide maternity leave. Participants indicated that such discrimination is experienced even more by indigenous women and those in rural areas. Women also constitute the majority of workers in maquila factories, considered the most exploitative workplaces due to the low pay, poor working conditions, lack of benefits, and the notorious failure to respect basic labor rights. Participants expressed concern that maquilas continue to be considered one of the most important sources of job creation in the country.
Fiscal Policy - user fees and public expenditure cuts in social services
Civil-society participants in the SAPRI forum in Uganda indicated that cost-sharing policies for service provision represents a major problem, rendering hospitals and institutes of higher education too costly for the poor. People testified that those who cannot pay for critical health care simply die. Cost-sharing is also poorly administered in the hospitals. In areas where people are unable to pay, local hospitals are closed down. It was also pointed out that low morale exists among civil servants due to the absence of a living wage, job insecurity and freezes on salaries and wages. Current budget ceilings also constrain the ability to respond to the need to improve poor quality services.
Social expenditures in Hungary fell, as did their real value, through 1996. With social services cut, more family needs have had to be covered by household funds. At the same time, however, incomes decreased and some 70 percent of the Hungarian people lost at least 40 percent of their real wages. Many are now spending as much as 80 percent of their income on rent. Some households went "bankrupt" as their incomes fell, many people are living off their assets or savings, and many pensioners have been forced out of their homes.
Public expenditure cuts have had additional and far-reaching negative effects in specific areas of activity, including housing, education and health. Low-cost housing loans have been eliminated, constraining housing construction despite population pressures. In the area of social services, cuts in education spending radically reduced teachers' salaries by 40 percent from 1992 to 1997 and 8,000 employees were dismissed, undermining the viability of the education system. Public expenditure on health-care has been reduced to a ranking of 21 out of the 26 Hungarian budget sectors, meaning, among other things, that there is a huge problem due to reliance on out-dated equipment. Finally, public-sector lay-offs are sharply increasing unemployment among women, many of whom have been unable to find their way back into the labor market, according to forum participants.
In Bangladesh, the SAPRI forum presented a summary of the key issues that had emerged from regional and focus group consultations. These issues included: cutbacks in public services in the social sector; increased income inequality; and reduced access by poor and vulnerable groups to health and education as a result of a greater emphasis on private providers and increased user fees.
Civil-society participants in the forum in Ghana noted that the overall quality of the country's educational system has declined since the onset of the adjustment program. The imposition of user fees has led to reduced enrollment rates, particularly in rural areas. There is a 40 percent drop-out rate in primary school, while total enrollment at the tertiary level is under 50,000. Many children have been pulled out of school to contribute to family income, leading to concerns that by the year 2020 Ghana's population will be largely illiterate. In addition, user fees have led to even greater inequalities both between and within communities, as the better-off increase their educational levels and the poor fall even farther behind. Those families who do manage to scrape together the money to pay the fees find that they have to cut back on essential household expenditures.
Retrenchment in the civil service and a decline in the real wages of teachers have led to higher student-teacher ratios. Reforms did not address the difficult working conditions teachers face, which have led to declining morale. Meanwhile, despite the imposition of user fees, there is still a widespread shortage of textbooks. These factors have led to an erosion of confidence in the public school system, causing those parents who can afford it to send their children to private schools, further undermining the viability of the public school system. The impact of these policies is often more severe for women and girls. A government representative acknowledged that because women are the poorest of poor, SAP policies have contributed to reduced education for girls and increased their poverty.
While funding for health care increased in the early years of the SAP, it has since declined. According to the civil-society participants, most of the country's improvements in life expectancy and infant mortality can be attributed to programs and policies promoted by UNICEF and WHO. The quality of health care has also been undermined by retrenchment. There are large discrepancies in the quality of care between rural and urban areas, as well as a large north-south divide. Access to services is still limited. Meanwhile, cost-recovery measures in the health-care sector were implemented at a time when many people had been laid off and income levels were extremely low. The introduction of user fees has thus led to reductions in outpatient attendance by up to 33 percent, particularly in rural areas. Many poor people are turned away for lack of funds. The payment arrangements are cumbersome, too much staff time is devoted to collecting fees, and the funds that are collected are often misused. The poor are simply being priced out of hospital care, and a two-tiered health-care system now exists, with better facilities for those who can afford to pay. Once again, women often bear the brunt of these policies. According to official surveys, poor women access government services and subsidies much less, and the official social safety net has not helped change this situation. A government representative stated that the effects of the adjustment program have rekindled the need for social equity to be a key part of health-care policy. No one should be denied health services because of their inability to pay.
Per capita spending for health and education in Ecuador is one of the lowest in Latin America, and cuts in social spending were cited as a direct consequence of adjustment policies. Civil-society participants argued that access to and the quality of public services are being sacrificed in order to free up funds to service the foreign debt. In 1980, 38 percent of the national budget was dedicated to social spending, while the figure for the current fiscal year has dropped to about 20 percent. In the same period, foreign-debt service has soared from eight percent to over 40 percent of the budget in 1998 and may even surpass 50 percent this year.
Forum participants criticized fiscal policy for reducing government expenditure, particularly in the social sectors, while at the same time increasing tax revenues in a manner that benefits a small group of businesspeople and banking interests at the expense of the majority of the population. The elimination of social subsidies in Ecuador was cited as having generated a chain of negative effects. Inflation has escalated, the price of basic goods and services has suffered proportionally higher increases, and producers have transferred cost increases to consumers. The income level of more than 60 percent of households in Ecuador does not cover the cost of a basket of basic goods. The elimination of subsidies for electricity, gas, oil and transportation has also been a major factor in raising the cost of living. It has reduced the limited purchasing power of low-income households by some 45 percent and has devastated small producers, such as those in the fishing sector, who rely on these inputs to make a living.
Civil-society participants also criticized the policy of targeted subsidies to the poor -- through a system of vouchers -- as unjust because, at best, 17 percent of the more than 7 million Ecuadorians living in poverty receive benefits, while most find their already difficult living conditions further deteriorating. Such compensatory policies neither significantly alleviate the negative impact of adjustment policies on low-income households nor address the root cause of the problem of poverty.
In the Philippines, forum participants testified that government spending on health and education has lagged far behind the growing need. This is especially true in poorer regions of the country, such as areas of Mindanao, where drop-out rates in schools reach as high as 50 percent. A secondary-school teacher in western Mindanao testified to the deplorable situation in schools in the area: 50 classrooms serve a student population of 11,000, and the few textbooks that are available must be shared by many students. As a result, literacy rates are very low and youth have even greater difficulties finding gainful employment. Participants also noted that poor families are often unable to cover the increased costs of sending their children to school, which include fees for materials, vaccinations and meals.
Forum participants also described the deterioration of health-care services resulting from insufficient spending and the ineffective allocation of available funds. Liberalization of the health-care sector under the adjustment program in the 1980s led to the deregulation of pharmaceuticals and an increase in hospital and doctor fees. Privatization, manifested in the contracting out of services by hospitals, has reduced accessibility by increasing costs to consumers. Public clinics often lack medicines, and public services provide more curative than preventative care. Participants also decried the fact that NGOs have increasingly been put in the position of carrying the burden of service provision that should be the responsibility of the state.
The Mexico forum participants blamed many of the inadequacies in health care and education on reduced public spending on these social programs. Funding cutbacks have adversely affected a range of educational services, leading to high repetition and drop-out rates. Primary education was said to be free only in theory due to expenses that families must incur (and often cannot afford) for uniforms, books and transportation. Access to secondary education was cited as being even more restricted, due to the high opportunity cost for poor families. General health-care provision has been restricted to the most basic services, such as vaccinations and family planning, while expanded services have become increasingly concentrated in urban areas. Minority populations and those in rural areas have less access to the more limited resources. For example, women in rural areas, particularly indigenous women, have a disproportionately high incidence of problems related to childbirth.
Unwillingness to Respond
From one SAPRI or CASA national forum to the next, civil-society participants urged the Bank to move off its insistence on a number of economic adjustment measures that have had devastating effects on a wide range of sectors and population groups. Yet even in countries such as Ecuador and Zimbabwe, where economic and political crises have led the Bank to strengthen relations with the local civil-society teams, the Bank has yet to demonstrate any readiness to accept substantive changes in, or alternatives to, current economic policy, as advocated by prominent civil-society organizations.
That no serious attention has been paid by the Bank to what was presented at the national fora should be instructive to other civil-society actors engaging the Bank in policy dialogue. Despite the fact that these broad-based SAPRI/CASA consultations with the Bank were extensively organized over a long period of time and the information, analysis and experience brought forth were exactly the "legitimate" views of the alienated to which the Bank's president has recently referred, no significant feedback has yet been received by SAPRIN and no mechanism has yet been established in the Bank to process and utilize SAPRI/CASA information from the field in a meaningful way.
The Bank is, of course, constrained in its ability to respond to civil society by the U.S. Treasury and its financial-sector constituencies. Another reason, however, for this lack of responsiveness, as well as for the failure of the Bank to honor various other commitments negotiated with SAPRIN, is that the institution, despite its stated interest in consultation and partnership, has not been accustomed to working in equal relationships in which it is not dictating the terms of engagement. It is more comfortable with its typical civil-society consultation process in which it has been able to select NGO conveners and moderators, hand-pick the participants, define the agenda, and control the flow of information. It has usually been quite interested in circulating its interpretation of the results of such consultations.
But, from the start, SAPRIN successfully sought to level the playing field in the field exercises, so that citizens' groups came to the table as equals with the Bank and government. The Bank was not permitted to interfere with the local mobilization and organizing by civil-society organizations. These groups, after a process of broad outreach and inclusion, chose their own leaders and created their own structures. They also took the initiative in selecting the priority adjustment issues for discussion and review. And, by managing the finances, they asserted primary control over the structure of the national fora. Unable to select their local counterparts or shape the agenda, and hence the output from the process, the Bank appears to have chosen to play down the national fora, while, interestingly, taking note of the extraordinary organizing that has been effected in some countries. That leaves SAPRIN with the important but daunting task of holding the Bank accountable to its commitments.
One way of effecting this accountability, beyond ensuring that the entire process is transparent, is to continue with a professional approach through the completion of SAPRI/CASA, anticipating that the results will speak for themselves at both the national and global levels. While the final opening national fora were being held last year, SAPRI and CASA exercises entered the field-research phase in the other countries involved in the Initiative. In most of the SAPRI countries, there have been delays in this phase due either to difficulties in working out terms of reference and other agreements among the three local partners -- SAPRIN, the Bank and government -- that form the national technical teams or to the need to improve capacity and increase clarity with regard to finalizing and implementing the local research design. To address these matters, SAPRIN has organized a number of workshops at the national, regional and global levels. Final research drafts, which will include feedback from the field designed to deepen the analysis presented at the first fora, are expected by mid-year, and second national fora will follow shortly afterwards.
An Expanded SAPRIN Agenda
SAPRIN has meanwhile added new dimensions to its work. In all ten countries, it has responded to new priorities emerging at the country level, namely the launching of field-based programs of economic literacy and the development of economic alternatives parallel to, but also integrated with, the research now underway. Citizens' work on alternative economic-policy proposals is also the centerpiece of the processes in Argentina and Brazil, as well as ones being carried out in Canada and on a regional basis in Central America. In order to expand its program while ensuring effective civil-society participation and performance in the original SAPRI/CASA exercises, SAPRIN has increased its fundraising and doubled national civil-society budgets. To date, SAPRIN has been funded by the governments of Norway, Sweden, the Netherlands and Belgium, the European Union, the UNDP, and several foundations and non-governmental organizations. Significant in-kind contributions by local civil-society groups, as well as by Northern organizations engaged in SAPRIN, have also helped make this expansion of effort possible.
To advance the alternative vision emerging from the country exercises, SAPRIN is joining forces with other social movements grounded in the South that share a common agenda for change. Like SAPRIN, networks such as Social Watch and Jubilee South, as well as important segments of the international trade-union movement, view adjustment programs as they do unpalatable trade and investment programs advanced by the World Trade Organization and other unrepresentative bodies. In this broader movement to hold undemocratic institutions accountable to the people whose lives they so directly and negatively affect, SAPRIN is focused on building alliances with other peoples' movements, governments and official institutions committed to a new generation of more equitable, viable and sustainable economic policies rooted in the experiences, knowledge and priorities of the people of the South.