Zimbabwe Is Test Case for Tough Adjustment Plan

TO most Africans, Zimbabwe is a relative paradise. Driving down tree-lined highways from the airport to Harare, the capital, one is struck by the smooth roads, working traffic lights, orderly drivers, and the city's cleanliness. Brightly lit shop windows are stuffed with a fair variety of goods - most carrying the label "Made in Zimbabwe."

But in the industrial sites at the end of town, large numbers of youths loiter in search of work. An unemployment rate of almost 30 percent is driving home the fact that, although Zimbabwe is doing well compared with other African states, it is still far from achieving its economic potential.

This fact is at the heart of a home-grown structural adjustment program recently unveiled by the government. Like other programs sprouting in Africa, mostly at the insistence of the International Monetary Fund (IMF) and the World Bank, its goal is to breathe life into the economy. Yet, unlike other programs designed more directly by the IMF and World Bank, Zimbabwe hopes it will be achieved without such side effects as ruining local industry and increasing poverty.

Because of criticism of structural adjustment in Africa, Zimbabwe's program has drawn interest from donors who in March gave $700 million for the first year of the five-year program.

"It is becoming increasingly important in Africa to add to the list of countries which can be shown to have benefited from structural adjustment," says a Western financier. If Zimbabwe's program succeeds, another Western donor adds, "it will point the way for others to follow."

Zimbabwe begins with a number of advantages. Although the country experienced setbacks because of international sanctions before independence in 1980, these forced it to more fully develop its resources. Today, Zimbabwe has one of the most diversified economies in Africa, with industry accounting for 25 percent of gross domestic product. Soon after independence, Zimbabwe had a temporary boom.

But a combination of droughts, unfavorable commodity prices, heavy debt repayments, and a high budget deficit depressed the economy.

Although Zimbabwe has never defaulted on its debts and has a triple A credit rating, rising foreign currency shortages, along with wage and price controls, have held back the productive sectors. These factors, together with the government's socialist rhetoric, drove away investors. South Africa's disinvestment after independence gave Zimbabwe a negative investment flow. Unemployment has grown, becoming government's biggest concern.

To boost investment, the government last year passed a new investment code and established an investment center. It has also released a five-year "Framework for Economic Reform" after consultation with the IMF and the World Bank.

When he was here in February, Michel Camdessus, the IMF's managing director, indicated the IMF would like to be involved in the program through some of its recently evolved longer-term financing. But if the requirements are too rigid, it is under no pressure to deal with the IMF. Says one economist: "The IMF, which is keen to chalk up a few more Africa success stories, seems more keen than Zimbabwe to enter negotiations."

During the five-year program, the government aims to liberalize access to foreign exchange until all administrative controls are removed. The program is being phased in to allow industries to retool, so that they can compete when all items can be freely imported.

"We in Zimbabwe don't want to end up de-industrializing in the name of industrialization," says Finance Minister Bernard Chidzero.

Most price controls are to be removed and wages set by collective bargaining, with minimal government intervention. The government has also pledged to cut the budget deficit from 10 to 5 percent of gross domestic product. This will mean ending all subsidies over five years, as well as introducing some cost-recovery measures in the education and health sectors. Several thousand civil servants will lose their jobs.

But unlike other African countries that have added social security funds to their adjustment programs as an afterthought, Zimbabwe begins with one. The government has already committed $8 million to this, and more is expected from donors.

Social critics say it will still be politically difficult to introduce all necessary measures, and they question whether Zimbabwe, which has not abandoned socialist rhetoric, will have the political stamina to see the program through. Some economic experts question whether, by drawing the program out over five years, Zimbabwe is not moving too slowly.

But a World Bank official, familiar with failed efforts at economic reform elsewhere in Africa, is optimistic. "It is better," he says, "to aim at five years, and achieve what you have set out to do, than to aim at three years and not achieve what you have set out to do in that period in five years."