[Editor's Note: The following article is based on information in a landmark report, "State of Disaster: Causes, Consequences & Policy Lessons From Malawi," released by ActionAid on June 13, 2002. The full report, written chiefly by Stephen Devereux, along with a summary prepared by ActionAid USA ("Death by Starvation in Malawi: The Link Between Macro-Economic & Structural Policies and the Agricultural Disaster in Malawi"), may be found on the web at <http://www.actionaid.org/newsandmedia/malawi.shtml>. Some of the conclusions in this article are extrapolated from the evidence and analysis in the report, but may not represent the position of ActionAid or its affiliates. The 50 Years Is Enough Network takes full responsibility for the content of this article.]

Reports of a devastating famine in Malawi first surfaced as rumors coming from rural areas of the country around October 2001. Malawians in the cities, including government officials in Lilongwe, the capital, were slow to believe, or act on, the persistent accounts. Even when well-known advocacy groups like the Malawi Economic Justice Network (MEJN) and the Catholic Commission for Justice and Peace presented data to back up the reports, they were dismissed as lacking credibility. But incredible as it may have seemed, Malawi — hardly a desert state, but a densely-populated country in a lush region — really was facing catastrophic food shortages in the wake of a combination of flooding and a regional drought, and after over a decade of "structural adjustment" policies designed by the IMF.

The crisis in rural Malawi finally hit the headlines on February 22, 2002, when MEJN succeeded in attracting attention to its call for government and donor action. It dewmanded that "the Government should acknowledge that there is hunger in Malawi; make the holding of maize a crime, subsidize the price of maize in Malawi; government and civil society should provide food supplies to vulnerable groups." At this point, the mainstream international media started broadcasting reports of a famine emergency, desperation and critical food shortages.

An international blame game has emerged between the government of Malawi and the IMF. Malawi's President, Bakili Muluzi, declared: "The IMF is to blame for the biting food crisis. They insisted the government sell maize from its strategic reserve and requested that the government abandon its starter pack agricultural subsidy program." The IMF's representative in Malawi commented: "We have no expertise in food security policy and we did not instruct the Malawi Government or the National Food Reserve Agency (NFRA) to dispose of the reserves."

Famine, Democracy, and Economic Policy
An intensively agricultural country like Malawi should, with adequate planning, have been able to endure a year of localized flooding (2000-2001) followed by a year of drought. Nobel Prize-winning economist Amartya Sen has made his reputation by showing that killer famines do not occur simply because of weather or natural disasters, but arise from a combination of factors which usually includes the subordination of common sense planning to political distortions, ranging from war or military occupation to corruption. Sen's most famous corollary to this observation is that democracies do not suffer famines, since the government must be responsive to the population.

But Malawi is a democracy, at least formally, even if it is hardly a model democracy (President Muluzi recently said he would not resist the label "dictator"). One of the questions that must be asked in light of the ActionAid report, which finds that the International Monetary Fund (IMF) must share the blame for permitting at least one thousand people to die of hunger in Malawi, is whether a government under intense pressure from the IMF and similar financial institutions to accept inappropriate policies is afflicted with a political distortion serious enough that it can no longer be called "democratic."

The IMF/World Bank Privatization Agenda
The context for the crisis in Malawi is the IMF's (and the World Bank's) continuing quest to privatize every portion of the economy that can conceivably be wrested from the government. This mission is by no means limited to Malawi; it is fast becoming the new modus operandi for the institutions everywhere they operate. More and more, observers are coming to fear that near-wholesale privatization of developing country governments is the agenda for the IMF and World Bank after 20 years of devastating their capacity through structural adjustment programs. (See article by the Citizens Network on Essential Services in this issue.)

At the heart of the privatization agenda in Malawi is the agricultural liberalization program. Among its features are the reduction or elimination of programs supplying small farmers with fertilizer, seeds, and credit, often subsidized, and providing consumers with subsidies for basic food and other "price stabilization interventions." The IMF has prioritized the privatization of the agencies that have provided support for farmers and food security, the Agricultural Development and Marketing Corporation (ADMARC) and the National Food Reserve Agency (NFRA).

Background to the Crisis
There appears to be enough blame for both the government and the IMF to share ample portions. The ActionAid report isolates one important factor — the failure of macro-economic and structural policy to safeguard against the famine in Malawi. At the same time, the report states: "We remain conscious of the myriad of complex variables, both causal and correlative, often associated with famine situations." It does not claim that economic policy was the sole culprit, but rather a major contributing factor, and one that could have been changed.

For Malawi's farmers, 1998/99 and 1999/00 were good production years. Localized flooding reduced the 2000/01 maize harvest, leaving a shortfall estimated at 237,000 metric tons. By the end of 2001, as drought persisted, the maize shortfall had almost tripled. Predictions were made, however, that a bumper harvest of cassava and others root and tuber crops would partially offset the deficit. The prediction resulted in what ActionAid terms "misplaced complacency," since it turned out to be incorrect. Signals of the impending food crisis were missed, and the government accepted the IMF's insistence that the Strategic Grain Reserve should be reduced.

The original sin seems to lie with the IMF and the European Union, which repeatedly called for Malawi's grain reserve to be privatized and run on a "cost-recovery basis." This resulted in the 1999 spin-off of NFRA from ADMARC, with a mandate to maintain adequate buffer stocks of grain and to protect Malawians against fluctuations in food production, availability and prices. Neither the government nor the donors thought it necessary to provide the NFRA with any starting capital, however. After the rich harvest of 1999, the NFRA followed its mandate by purchasing 167,000 metric tons of maize. But in order to do so, it had to take out loans from both commercial and government banks. ActionAid quotes a donor official as saying, "The decision for a commercial loan to be taken to capitalize the NFRA – that was a crazy decision." Some of the loans are reported to have carried an annual interest rate of 56%. (Interest rates are often kept high in countries under IMF programs, though it is not clear if that was the reason for the 56% rate.)

The grain reserve was at near-capacity for three years. The costs of maintaining it, in addition to the rapidly-growing debt from the loans, made the donors nervous. Additionally, with no cash on hand, the NFRA had no way to pay its employees. The IMF and the World Bank agreed that the NFRA should sell some of its grain stock. However, the price of maize in Malawi at that time was low, and the sales were made at heavy losses.

In fact, it appears that the government went further than the IMF suggested. The IMF reports it recommended reducing the reserve from 165,000 to 60,000 metric tons by selling it outside the country, so as to avoid further depressing maize prices for Malawian farmers. The NFRA initially sold 30,000 tons to Kenya and 5,000 tons to Mozambique. But it then seems to sold almost all of the remaining reserve, much of it on local markets. There is some evidence that much of it was sold to local traders, who stockpiled it and profiteered from hunger.

When food shortages arose after an unexpectedly poor harvest, the government tried to purchase food from other countries. Not only had prices shot up, but a series of logistical problems caused fatal delays and added to the pressure on retail prices, which soon exceeded affordable levels. In a tragic irony, donors, who suspected corruption had soaked up the proceeds of the grain reserve, responded by suspending aid to the government.

Assessing the IMF's Role
ActionAid concludes that regardless of who was most at fault for the miscalculations that led to the sale of the strategic grain reserve, "the IMF displayed remarkable insensitivity and ideological narrow-mindedness in the Concluding Statement of its Mission in May 2002, which resolved to withhold disbursement of $47 million to Malawi. While acknowledging the need for ‘urgent action to prevent starvation,' the IMF statement failed to mention that hundreds of starvation deaths had already occurred just 2-3 months previously, and it implied that ADMARC and NFRA activities to minimize famine mortality were unjustified and ‘unproductive.'"

The IMF's report from last month stated "the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets ultimately led to the NFRA and the ADMARC taking heavy recourse to budgetary financing, crowding out more productive spending." It all depends, of course, on what is considered more "productive": dollars or human lives.

The IMF has suspended not only disbursements in its current program in Malawi, but also interim debt relief under the HIPC program (see article on HIPC in this issue). Despite the crisis, NFRA continues to be viewed by the IMF only as a drain on budgetary resources and emphasis continues to be placed on lowering operating expenses and to generating sufficient funds to pay off outstanding debts.

The Government's Role
ActionAid reports that IMF documents confirm that the government of Malawi has been reluctant to implement aspects of the IMF's agricultural liberalization program. However, faced with with the need to access balance of payments support from the IMF, the government instituted the policy package. ActionAid says that in trying to compare the government's actions and the IMF's, "the willingness to accept inappropriate policy reforms in the final instance and an inability to formulate policy alternatives makes [the government] equally responsible."

Despite concerns about corruption and operational inefficiencies acknowledged by the IMF and other donors about ADMARC, during the 1991-92 drought the agency, which at the time included the function of NFRA, had the capacity to dispense food through depots in the most inaccessible rural communities at affordable prices. This capacity has collapsed in 2002. And, as the February 2001 executive summary of the IMF's report on Malawi's 2000 Article IV Consultation [annual economic analysis] and PRGF [structural adjustment program] reveals, the IMF has actively sought to reduce the state's capacity to provide subsidies and stabilize food prices. The report states: "The marketing of maize used to be the sole preserve of ADMARC. These monopoly provisions have been removed and ADMARC is no longer able to borrow for intervention activities under Government guarantee. However there is considerable resistance to full privatization partly because of the difficulties involved in encouraging private traders to take over ADMARC's loss-making operations in far-flung rural areas. For the time being, ADMARC will undergo further commercialization. The Fund and the World Banks staffs urged retention of the target of full privatization by end-2002 but the authorities were unwilling to confirm such a commitment."

The IMF's priority can also be seen with regard to the provision of services to farmers. The ActionAid report states, "The main constraint on agricultural production in Malawi since the early 1990s has been constrained access to inputs (fertilizer, seeds, credit). It is in this context that the government of Malawi's ‘ Starter Pack' – or Targeted Inputs Program – makes an important contribution to the national harvest and household food security. Distribution of Starter Packs was abandoned two years ago, restricted to 1 million households last year on the advice of international donors, but will be expanded this year, up to 2.5 million households."

The consequences of the removal of subsidy programs for farmers are clear. The number of farmers growing tobacco, Malawi's largest export crop, has, says the IMF, increased, as has their productivity. But, as the IMF also acknowledges, farmers' income has actually declined 25%, largely due to having to pay increased prices for fertilizers, seeds, and credit.

ActionAid notes that the IMF apparently accepts no responsibility for its own role in the confluence of events leading up to the deaths of over a thousand people. As noted earlier, it has gone on record saying that it has no expertise in the area of food security policy, yet provided policy advice in an area which directly affected food security. The report ultimately asks "what the relevance of development of macroeconomic targets, private sector led GDP growth, fiscal discipline and export growth targets are, if such variables seemingly have little impact on the ability of the economy to support food security?"

ActionAid concludes by pointing to the fact that the IMF is not simply a power that must be reckoned with on its own terms, but a public institution which must take responsibility and be held accountable for its advice, conditionality and lending practices. In light of a famine caused, or at least exacerbated, by economic liberalization, it should no longer be possible to insist on a rigorous liberalization program at all costs, or to brush off demands for acceptance of a government's right to provide agricultural subsidies, develop greater regulatory state capacity of the market and prioritize preservation of essential food-crops.

After extensive contact with the Malawian Government, civil society and donors on a draft version of its report, ActionAid has issued a call for the IMF to:

1. Institute an urgent moratorium on structural reforms so that food security objectives can be formulated, set and met by the government, civil society, and donors.

2. Tolerate governmental regulation of various forms of financial manipulation.

3. Determine who may have benefited from the sell-off of the Strategic Grain Reserve and the reduction of regulatory capacity.