[stop-imf] Mozambique Faces Sugar Debate As World Bank, IMF Disagree (fwd)

Tue, 20 Jun 2000 16:54:17 -0400 (EDT)

June 20, 2000

Economy

Mozambique Faces Sugar Debate
As World Bank, IMF Disagree
By MICHAEL M. PHILLIPS
Staff Reporter of THE WALL STREET JOURNAL

MAPUTO, Mozambique -- Having survived apocalyptic floods and years of civil
strife, Mozambique now finds its economic fate tangled in an academic
disagreement between the world's two biggest development aid organizations.

Hanging on the outcome is the country's sugar industry, which has risen fro=
m
the ashes of war to employ 17,000 people, but may shrink again depending on
whose argument wins the day.

On one side is the International Monetary Fund, whose free-market orthodoxy
leads it to conclude that Mozambique has no business being in the sugar
business and should break down the tariffs that protect the mills from
imports of foreign sugar. On the other side is the World Bank, which has
lent money to a Mozambican sugar mill and sees a promising future in the
commodity.

In the middle is an impoverished country that depends heavily on both World
Bank and IMF loans and hears investors threatening to shutter their sugar
operations if the IMF gets its way.

'Impossible to Compete'

"If everything is removed, it's impossible to compete with international
prices," says Arnaldo Ribeiro, director of the government's National Sugar
Institute. "What's the point of doing business here?"

Mozambican Finance Minister Luisa Diogo raised her concerns with Treasury
Secretary Lawrence Summers during a visit here last week. As a major
financial supporter of both the IMF and the World Bank, the U.S. has
considerable influence in their loan decisions. Treasury officials are
unsure whether Mozambique is wise to invest in a sugar industry, and to
learn more about the situation, Mr. Summers asked local business executives
to lay out their views about the sugar and other industries to the U.S.
Embassy in Maputo.

Earlier this month, a dozen supportive U.S. lawmakers wrote to President
Clinton complaining about the way the international lenders are treating
Mozambique.

Mozambican President Joaquim Chissano said his administration will continue
to protect the sugar industry. "We see no reason we should be excluded from
a resource we have in our hands."

The case is a new twist in the debate over World Bank and IMF lending. The
protesters who blockaded downtown Washington during April's World Bank/IMF
meetings accuse the institutions of imposing textbook economic policies tha=
t
hurt, not help workers, the poor and the environment.

Critics frequently point to Mozambique when making their case. The World
Bank, they say, destroyed the country's cashew-processing industry by
forcing the government to remove a tax on the export of raw nuts. Companies
simply shipped the raw nuts to processors in India, leaving the local
factories idle, the argument goes.

In the sugar case, the controversy is sharpened by the facts that the IMF
and World Bank have different notions of what works best for Mozambique, an=
d
that, when it comes to sugar, the rich countries that run the World Bank an=
d
IMF don't follow their own free-market advice.

"We're not a bit concerned that the IMF supports free-market policies for
sugar," says Seth Amgott, a spokesman for Oxfam International, an
antipoverty group. "But it's dogmatic and ideological to advise Mozambique
to stop protecting its low-cost sugar producers if you do nothing about the
U.S. and European Union protecting high-cost sugar producers."

A Global Plantation

"When only poor countries have to open their markets, it's not free trade -=
-
it's a global plantation," says Mr. Amgott.

Mozambique certainly qualifies as poor. The country endured 16 years of
civil war before peace returned in 1992, only to be hit by a series of
cyclones and floods early this year. Some one million people were affected,
and 700 left dead. Thousands of people still live on handouts in tented
camps, their homes not worth reclaiming. Even before the waters surged
through the country, seven of every 10 Mozambicans lived in poverty.

Among the victims of the war was the nation's sugar industry. It once
employed 45,000 people in a nation of 17 million, but it collapsed amid the
long years of violence. With peace re-established, the Mozambican governmen=
t
decided to attract foreign investors to rebuild the country's six sugar
estates. In exchange, officials promised to keep an import levy in place to
keep out cheaper sugar subsidized by foreign governments.

Best African Pupil

Usually, the IMF and World Bank have no better pupil in Africa than
Mozambique. The government has its roots in radical socialism; the U.S.
Embassy press office in town still sits at the corner of streets named for
Mao Tse-tung and Kim Il Sung. But it has embraced free-market principles
enthusiastically and managed to produce four straight years of near 10%
annual economic growth.

In March, the IMF rewarded Mozambique with a $50 million loan. And the
institutions have jointly granted the country $4.3 billion in debt relief.

But in its negotiations with the government, the IMF pushed for a rapid
phaseout of the import tariff on sugar. IMF officials argued that because
other countries -- including the U.S. -- subsidize or protect their sugar
producers, Mozambique shouldn't waste its money trying to compete and force
higher prices on Mozambican consumers.

"If the viability of the enterprises can only be assured at the present wit=
h
very high protection levels, with no prospect of future reductions, then
perhaps they're not very good projects," says Jurgen Reitmaier, the IMF
official in charge of negotiations with Mozambique.

The World Bank, like the Mozambican government, believes otherwise. In
December, the bank's business-finance arm, the International Finance Corp.,
lent Maragra Acucar SARL $10.3 million to restore its plantation and mill
about 50 miles outside Maputo. Other major IMF and World Bank members,
including France and Germany, also contributed.

"This is one of the few industries that has been able to attract foreign
investment in Mozambique in the agriculture sector," says Tei Mante,
director of the agribusiness department at the IFC. "So it's not something
you can shut down." Only after the industry is fully operational and
competitive should tariffs come down, the IFC and government believe.

Now Maragra Acucar is leading the fight against the IMF, implying none too
subtly that if the tariffs go, so will the mill.

"It's like the sword of Damocles over our head," says Paul de Robillard,
general manager of Maragra, a 3,000-employee operation owned by Illovo Suga=
r
Ltd., of Durban, South Africa. "Especially after the flood, what do we do?
Do you turn to them and say, 'Sorry, because of the IMF there are no more
jobs.' "

For the moment, everyone has agreed to commission a study to determine
what's best for Mozambique. The negotiations will start anew once the study
is completed in a month or two.